How to Avoid Crypto Rug Pulls in 2022

It seems like every time a crazy new crypto trend comes out that looks like a pretty good investment, everyone’s always quick to call it a “rug pull”. It has gotten to the point where the word is thrown around so much that it has lost all of its meaning. But, it’s important to note that rug pulls are a thing, and they are extremely dangerous.

That’s why in this article, I’ll be going through everything you need to know about rug pulls, some of the most famous examples, how you can identify some of them, and everything else! So, let’s dive in!

What are Rug Pulls?

First, let’s talk about what rug pulls really are. They’re basically one of the most threatening and prominent scams in the crypto world. The reason why rug pulls are so common is that they’re incredibly easy to “pull” off.

Rug pulls are essentially when developers launch a brand new cryptocurrency, buy a bunch of that specific currency, pump up the price using various means, and then sell as much of that token as possible, dropping its value to nearly zero.

There are many different kinds of rug pulls, but this is just a general description of all of them.

Rug pulls are extremely common among influencers and YouTubers. The way it works is that developers will usually own a bunch of a specific token beforehand, and they will partner up with some sort of influencer to market the crypto.

In most cases, these influencers will be given a lot of that specific crypto as part of “the deal”.

When the influencers market these cryptos to their fans, it’ll cause their value to skyrocket, but as soon as it does, the developers and influencers, who own a major chunk of the coin, will immediately “pull the rug”, sell all of their coins, and cause it to crash.

In the end, all of the inexperienced fans who did invest their money into the project would end up losing a lot of money.

One great example of an “influencer rug pull” would have to be Ice Poseidon’s promotion of a little cryptocurrency called CxCoin. In January of 2022, Ice Poseidon, a popular streamer and YouTuber, heavily promoted the cryptocurrency before it finally crashed.

After an investigation done by fellow YouTuber, Coffeezilla, Ice eventually admitted to “rug pulling” his fans, while at the same time claiming that he didn’t do anything wrong.

That’s a very important thing to understand. Usually, the YouTubers and influencers involved in these scams have an IQ in the negative, which means that they probably don’t even know what they’re doing.

They were just told they’d make a certain amount of money, so they end up promoting a scam on their platforms. Even though Ice Poseidon isn’t the best example of that, there are probably many influencers that are unknowingly promoting crypto scams, which is why it’s a good idea to always do your research before blindly supporting a coin an influencer came out with.

Different Kinds of Rug Pulls

There can be “Hard Pulls” or “Soft Pulls”. Hard pulls are when a cryptocurrency is coded in a suspicious way and it was always doomed from the get-go. These are usually the worst investments you can possibly make as far as crypto is concerned.

“Soft” rug pulls are whenever assets are dumped by a developer rather quickly. Soft pulls tend to be more common than hard pulls since it’s easier to fool the general public into investing in those.

Another thing to note is that cryptos that are involved in “soft pulls” might even be audited by a third party and seem completely legit, even if they’re not.

“This crypto has been audited by third parties” is something a lot of influencers will tell you before they promote a token, but that still does not mean it isn’t a scam.

Hard rug pulls are completely illegal in almost every country or jurisdiction around the world. That’s because they’re designed to be scams. However, soft rug pulls may or may not be illegal.

In most cases, they’re simply considered unethical, which is why they’re so dangerous. You could potentially be scammed by a developer or an influencer and have them face no consequences whatsoever.

One of the most famous rug pulls that led to almost no consequences at all is the “Squid Game token”. This is a “hard pull” by design since the crypto didn’t allow users to sell it once they bought it.

It was initially marketed as a play-to-earn cryptocurrency that would have its own “Squid Game” styled game. Since the hype around the Netflix show was so extreme at the time, fans of the show immediately started to purchase these tokens in hopes that their favorite show would be turned into a video game.

It became one of the fastest-rising cryptos in history, trading from 1 cent per token to over $2,856 per token in less than a week. Shortly after, there was complete silence from the developers. The silence led to the crypto crashing, with its price going down to a fractionof a cent. The developers were anonymous, and they’re thought to have earned tens of millions of dollars in the scam.

But the Squid Game token is only the tip of the iceberg when it comes to scams like these.

Unfortunately, many unknowing people become victims of these scams almost every single day, and many of those don’t even reach media attention. That’s why it’s so important for you to know the signs of a rug pull and how you can avoid them.

Signs of Rug Pulls and How to Protect Yourself

Arguably one of the biggest signs that the crypto you’re looking to invest into might be a rug pull is that they have shady or unknown developers. You should always invest in crypto projects with reputable people behind them.

You can find out more about almost any crypto project by going to their websites. If you invest in a project with developers with absolutely no history, backing, or information about them, the project overall is most likely a rug pull and you should avoid it at all costs.

If the team includes actual people that can be held accountable, the chances of it notbeing a scam are higher for the most part.

Now, I’ve mentioned how “audits” are not always reliable before, and that’s true. You should not invest in anything that hasn’t been audited by a reputable third party. A lot of projects will also claim to be audited when they actually haven’t been.

That’s why you should never take anyone’s word for it and actually do the research by yourself. It’s very simple for certain developers to write suspicious codes and try to scam people, and audits can prevent that from happening. At least in most cases.

But one of the easiest ways you can spot a rug pull from a mile away is if it just sounds too good to be true. This is generally something you should keep in mind for any investment, not just crypto.

Whenever a crypto project announces that they’re going to give you more returns, insane rewards, benefits, and everything else, and it all sounds too good to be true, it’s probably because it is.

That’s not to say that every crypto project that promises great things is a scam. Some of them are probably legit. Once again, you have to do your own research and trust your gut.

If you’re really interested in a project and want to do a little bit of digging yourself, you can always try to look into blocks yourself using a block explorer. This will allow you to see how a cryptocurrency is distributed among its shareholders.

Any crypto where a small group of people owns a large percentage of the tokens is a prime case of a rug pull. Those are the kinds of cryptos that you need to avoid at all costs. These shareholders can directly influence the price of the crypto, or at least cause it to crash.

Thanks to the transparent nature of cryptocurrencies, almost anyonecan go on a block explorer and know whenever something is a scam.

Another “coding” scam is whenever a cryptocurrency places restrictions on the selling of crypto, but not the buying of it. Usually, this is hidden inside the code, and most people will not be able to tell.

Once again, you can avoid this by not investing in any crypto that hasn’t been audited, or you can avoid this by only investing in cryptos that are on centralized exchanges like Binance, FTX, or Coinbase.

If you don’t want to use a centralized exchange though, you can still test it by buying the tiniest amount of the crypto you’re interested in and trying to sell it. If you have problems while selling, it’s most likely a scam.

But one thing you should always remember is these scams are just as common as everyone says they are. There are so many layers to these scams, most of them tend to be simple and easy to spot, but others are more complicated and clever.

Once you do learn more and more about crypto scams, specifically rug scams, you’ll easily be able to identify “scam cryptos” as soon as you see them.

What are some of the other crypto scams people should be cautious about? Let me know in the comments below! Stay informed by visiting my YouTube Channel https://bit.ly/3720zFW