What you need to know about crypto rug pulls before entering the industry

What you need to know about crypto rug pulls before entering the industry
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According to a 2021 report from the Federal Trade Commission, nearly 46,000 individuals fell victim to crypto scams while conducting crypto-related activities like trading or registering on shady exchange platforms. The financial losses from crypto scams totalled no less than $1 billion, translating to a dollar out of four vanishing. Falling prey to dubious projects hyped up only to attract poorly prepared investors into the trap and attract their money criminally is nothing new in nowadays’ highly accessible cryptosystem, where the entry barriers are extremely low. However, it takes plenty of knowledge and know-how to pull off such a scam that draws thousands of victims to it and is successfully lost to sight with the targets’ holdings never to be wholly recuperated.

Yet, as the cryptocurrency realm has proven to be such a rewarding and easily navigable industry, it’s only normal for aspiring investors looking to get a quick buck to be drawn by allocating a portion of their investment portfolios to digital money. Given the many options for interested parties, creating crypto exchange accounts, sending orders, and trading is easier than ever. However, the raised barriers to entry have also led to numerous data breaches associated with crypto endeavours, such as some that you can learn about at www.howmuchcompensation.co.uk. Data breaches occur in all sorts of domains. Still, the crypto industry is even more susceptible, so let’s know more about how investors can protect themselves against crypto rug pulls and what are some of the most notorious examples recorded to manage better the whole crypto exploring experience.

crypto rug pulls

What exactly are crypto rug pulls?

Crypto scams take all sorts of forms, such as impersonation fraud, where malicious individuals pretend to be representatives of law enforcement or governmental bodies or even giant corporations like Amazon in order to be more persuasive. These are widespread, and everyone can fall victim to this scam. If you receive a dubious call that lags inaccurate information given and is not recognized as belonging to any official governmental or legal body, pay attention to the potential danger you may expose yourself to and don’t disclose any sensitive data (name, ID number, credit card number, and so on).

Rug pulls are cryptocurrency scams where the ill-intended parties attract victims’ money or sensitive data and get away with it, using them for malicious purposes. This industry has more than one type of rug pull, such as dumping, limiting sell orders or liquidity stealing.

The latter is expected in the DeFi ecosystem and regarded as one of the most straightforward exit scams. Basically, tokens’ developers retract all the assets from the used liquidity pools where they previously resided, which drags their prices down to nothing.

On the other hand, in sell order limitation, coin creators defraud investors in a way that can hardly be intuited beforehand. Developers build the assets’ code so that they’re the only parties with access to the holdings, being able to sell them as they wish without the actual holders’ consent.

Last but not least, the dumping method is more of an ethical issue compared to its counterparts. Usually, developers are not to be judged for creating crypto and then using it as they wish, commonly buying and selling it. The problem is more about ethics and comes down to the transitioned amounts.

Hard vs soft rug pulls – what’s the difference?

Coming across the explanation of rug pulls, one may naturally wonder how the law approaches them and if they’re legal. The reality is that they’re not always breaking the law, but they’re always contradicting ethicality.

Rug pulls belong to two categories: hard or soft. The former type is unlawful, so the punishments apply accordingly. Crypto creators often hide backdoors in the project’s code to enter the system and commit fraud. On the other hand, the latter regards the ethical side and is always considered immoral, often encountered among malicious devs getting rid of their assets rapidly.

Nevertheless, whichever way you slice it, both practices are happenable in real life and not always easy to track down and bring to justice.

How to stay away from crypto rug pulls

Obviously, basic knowledge of what crypto rug pulls represent is not enough to keep these scams at bay and protect your assets. For both starters and experienced crypto connoisseurs, spotting and avoiding these malicious tricks can be challenging but not impossible. Here are several ways you can discover and prevent these mishaps from happening.

  • Do your research. Dig deep into the project’s white paper and seek red flags like insufficient transparency, unclarity of terms and conditions, or unknown teams. Examine the project’s community, goals, and tech used, and find out if they offer a reliable track record.
  • Pay attention to social media hype. Overestimation and excessive project promotion should raise questions because the hype isn’t always justified and can signify trouble. Be wary of anything too advertised or propagandistic without substance backing its verve.
  • Engage in communities. Invaluable insights can be gained by taking part in crypto communities where wisdom and the latest news are shared, so rely on others’ knowledge to improve yours. 

Four of the most shocking crypto rugs pulls on record

These are some of the most notable crypto rugs pulls that can prove lessons in disguise for those who are acknowledging and learning from them.

  • Squid game – a Web3 project that scammed 12% of the BNB Chain coins and led to a 96% decline in the SQUID’s price.
  • Thodex – a scam that caused investors’ losses worth over $2 billion and, according to Chainalysis, an intelligence and risk management firm, accounted for 90% of the total money that vanished due to rug pulls in 2021.
  • MAP NFTs – rug pulls aren’t limited to cryptocurrencies; scams involving non-fungible tokens are also possible. Mutant Ape Planet (MAP) is associated with a rug pull, accounting for $2.9 million in losses.
  • OneCoin – regarded as the severest crypto Ponzi scheme, washing $4 billion off the market and defrauding investors of billions of dollars by impersonating a legitimate business.

Examining the most notorious crypto rug pulls can be your defence strategy playbook when venturing into the field.

Press releases or guest posts published by Crypto Economy have sent by companies or their representatives. Crypto Economy is not part of any of these agencies, projects or platforms. At Crypto Economy we do not give investment advice and encourage our readers to do their own research.


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