There are tons of cryptocurrencies where you can invest right now. Some of them will give you a significant return; some may destroy you as there are tons of scams. One of the great examples was the Squid Game token!
It's becoming harder to trust cryptos nowadays, especially when influencers and even news portals promote scam crypto.
Rugpull has become very popular among scammers. In 2021 total of 2.8 billion dollars was lost by rug pull!
What is Rug Pull?
So you may be wondering what rug pull is if you are new to crypto. Rug pull is basically when developers take investors' money and run away. There are three ways this can happen -
1. Removing Liquidity
The name sounds very cheap, but it's straightforward to understand. There's something called a liquidity pool in crypto, and it's not your carpool or swimming pool. We always have two cryptocurrencies in the liquidity pool like BNB/USDT, HIVE/ETH, LEO/BUSD, etc.
The more BNB/USDT you have in a pool, you have more liquidity. Because of this pool, the investor can easily convert BNB to USDT or vice versa. And if the pool doesn't exist, you can't convert these two cryptos with each other.
For example, this is the list of liquidity pools on Uniswap. If you look at this pair, you can convert USDC to ETH, and ETH to USDC. The total value of crypto in this pool is $364.15m. So, you can see the liquidity is very high!
By the way, take note that it's super easy now to create a new token. Anyone can do it! You don't need to be a developer! Here's what happens in a rug pull. The developer creates a new token. Let's say a developer created a new token and named it Squid Game, aka $Squid. And he created a new pool Squid/ETH, so that if anyone wants to buy Squid, he or she have to use ETH.
Read Also - Binance Smart Chain - A Wild West!
When more and more people buy Squid, the pool's TVL(Total Value) will increase and go to the moon(!). When the time is right for scamming, the devs will withdraw Squid/ETH liquidity from the pool. They will end up with more ETH and less Squid token because this is how the liquidity pool works. As there's no more liquidity left in the pool, investors won't be able to trade Squid anymore and their tokens are worthless now.
So you have to check how long the developers are locking the liquidity pool. Be cautious and don't lose your money.
2. Disable Ability to sell
The second rug-pulling method is quite simple; now, you can imagine by the title. It's possible by the devs that they can disable the ability to sell. That means you can buy a token, but you can't sell it. Basically, they are forcing you to have Diamond Hands, which is not a good thing. Because if you buy such kind of scam tokens, you will be Diamond Hands forever, can't paperhand!
When more and more people buy, it will just go up. No red line in the chart as nobody can't sell! When the time is right, the developers and team will sell all tokens and run away! That's what happened in Squid Game crypto where investors lost around $3.3 Million!
I have my own simple method to stay safe from this kind of Rug pulls. Obviously, I always check team profiles, websites, socials, and charts before buying any shitcoins. Then I just buy only $1 of that token and sell it again. So if I lose, then I just lose one buck.
3. Developers Sell Their Shares
The third Rug Pulling method is also very simple - developers sell the shares! For example, they could create worthless crypto and call it Elon Inu! They will generate hype about this token and attract innocent investors to buy their useless shit!
They will act like it's the next Bitcoin killer! And after you buy, they will slowly sell their shares and run away. They are, again, leaving you some worthless crypto!
For newbies, in every token, devs, and teams have some shares from the tokens like Dev Shares, Marketing Shares, BuyBack shares, etc.! If you see dev share is so high in any token, then you can tell that something isn't right!
So, these are the main ways Rug Pulls can happen. The sad thing is that when people see so many scams like this, they think that cryptos are scams! They are like - Bitcoin is a scam! You will lose money if you invest in cryptocurrencies!
But here's the truth! Not all cryptos are scams, and they will be useful as long as they serve a purpose. For example - Ethereum is used to make a play to earn games, decentralized exchanges, NFTs, and others. Bitcoin is used as a store of value.
But it's not easy to differentiate a promising cryptocurrency from a bad one. In the following article, I will write about it!
In the meantime, read about a couple that did Bitfinex Hack!