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4th March 2022

 

Rug pulls crypto scam is a  fraud in which a crypto developer advertises a new project—usually a new token—to investors and then disappears with tens of millions or even hundreds of millions of dollars. In 2021, this form of fraud cost victims $2.8 billion, or 37% of total bitcoin scam earnings. It's a straightforward process to create new tokens on Ethereum or another blockchain and get that token listed on decentralized exchanges (DEXes), peer-to-peer marketplaces for crypto traders, without a code audit.

 

The victims of such frauds frequently lack the technical knowledge required to properly audit a project. The promise of quick, easy money is frequently too much to resist. 

 

Rug pull scams are popular when a new crypto project has little liquidity, which means, it's difficult to transfer the currency or asset into cash. Seasoned crypto traders avoid projects with minimal liquidity because of the hazards of erratic pricing and price manipulation.

 

Preventing Rug Pull Scam

Never assume a project is authentic simply because it appears to be official. It is important to have a good reputation, and you should only believe what you can verify. According to Richter, the abbreviation "DYOR" (Do Your Research) is frequently pushed in crypto circles as necessary for avoiding such frauds.

 

In November 2021, the value of a cryptocurrency token linked to the popular Netflix series fell from $2,586 to a cent. The project stated that an anti-dumping mechanism will be built into the code, making the $SQUID token resistant to a flash crash. Token holders could allegedly only sell if they also held the $MARBLE token. Nonetheless, the unknown creators walked away with around $3.3 million with little to no repercussions.

 

Rug pulls are frequently, but not always, conducted by anonymous creators promising quick, easy profits in exchange for blue-chip cryptocurrencies, according to Richter. "Although the blockchain environment respects anonymity, checking to see if the orchestrator has an established track record as a good actor might assist prevent certain hazards." Anonymity is frequently used as a scammer's shield for easy rug-pulls. Examine their 'proof-of-history.

 

Source: Fortune

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