What are Crypto Rug Pulls and How to Avoid Them?

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Coinmonks

4 min readMar 24, 2022

If you’re standing on a rug and it’s suddenly yanked out from under you, you’ll tumble to the floor unless it’s a magic carpet. Worse yet, you risk spilling or losing anything you were clutching at the time. That is precisely why you must be vigilant for rug pulls, much more so when trading a volatile crypto asset.

We’ll define what a rug pull is, how it occurs, and how to prevent it and what you need to know to remain ahead of the game and reduce risk.

What Is a ‘Rug Pull’ in Cryptocurrency?

Cryptocurrency is a wild west atmosphere where everything is possible. There is so much potential for positive change and disruption around every corner, yet fraudsters and malicious thieves are also eager to take from others with promise and profit.

When developers establish a token linked to a valued cryptocurrency, offer the token on decentralized exchanges (DEXs), and then withdraw all monies after the investor’s buy-in, this is referred to as a crypto rug pull. Rug pulls are often carried out by unscrupulous fraudsters who generate buzz for a currency and then quit the project, stealing the funds. Typically, these cryptocurrencies are coupled with trustworthy utility blockchains, such as Ethereum or Binance Chain.

Investors who exchanged their ETH for the listed token allow their developers to swiftly withdraw their ETH from liquidity. For instance, meme coins contribute to investors succumbing to the FOMO mindset and being duped.

How Do People Get Rugged?

Cryptocurrency hacks and frauds are widespread. They may take the form of email phishing scams or a suspicious-looking URL that you unintentionally visited online that downloads malware. Scammers have been known to impersonate people’s SIM cards to get crucial information. Not all schemes and situations, however, use such deceptive or behind-the-scenes approaches.

That is when the rug pull enters the picture. These cases cannot be dismissed just because there are only one or a few victims involved. Rug pulls often include a considerably bigger user base and frequently lose an entire market cap’s worth of cash. Rug pulls are often apparent exit scams disguised as a great initiative to entice consumers. Developers instantly remove all available liquidity when liquidity enters a project and the price increases, crushing the investment of those left holding the bag.

Several high-profile businesses that had attracted a lot of attention, even attracting some of the world’s most powerful billionaire investors, were caught up in similar scams, resulting in enormous losses for all parties involved. While the media focuses on their projects and efforts, developers disappear with the public’s money.

How To Avoid Being Scammed In Cryptocurrency

Avoiding this problem is not straightforward, but it is prudent to choose currencies or protocols that have been around for an extended period and are regarded as trustworthy. While the most significant profits and returns may come from an obscure new protocol or initiative, this is also where the most significant danger exists. It is critical to weigh the entire risk against profit. How, therefore, can crypto investors and token holders optimize their income potential while avoiding becoming rugged?

There are several options available now, with one new service set to launch in Q3 2021 that may significantly increase the safety of DeFi projects and scenarios like the one described above. Margin trading with cryptocurrency offers comparable profit potential and is a time-tested and reliable method of profiting from crypto assets without the danger of a rug pull.

While risk is still involved, it may be minimized with a stop-loss order and intelligent technical analysis. PrimeXBT is a reputable award-winning trading platform that provides tools and CFDs on cryptocurrency, forex, commodities, and stock indices.

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What are Crypto Rug Pulls and How to Avoid Them?

What Is a ‘Rug Pull’ in Cryptocurrency?

How Do People Get Rugged?

How To Avoid Being Scammed In Cryptocurrency

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Written by DEFIX SOLUTIONS