Rug pull is the new cryptocurrency scam, how to prevent it

Rug pull is the new cryptocurrency scam, how to prevent it

The ESET team , a proactive threat detection company, analyzed the “Rug pull” (in Spanish, “rug pull”), especially in DeFi projects (cryptoactives that are based on a decentralized finance system).

Rug pull occurs when the developers behind a project launch a token and attract investors to increase its value, then abruptly withdraw and take the money. When fraudsters emptied liquidity pools, the price of crypto assets drops to zero and investors lose the opportunity to exchange tokens for more stable or legal tender tokens.

“Projects designed as rug pull scams are not always obvious. Although we will find cases in which the project showed clear signs of being a hoax (such as the promise of great profits), this is not always the case. In fact, a large part of the crypto assets that ended up being a rug pull scam were presented as solid investment projects and not as opportunities to obtain quick profits”, comments Camilo Gutiérrez Amaya, head of the ESET Latin America Research Laboratory.

According to Chainalysis, rug pull is a new form of cybercrime that has grown significantly in recent years. In fact, and by 2021,they estimate that at least $2.8 billion has been stolen from victims under this pattern,being 37% of everything collected by scams worldwide with electronic money.

There are 3 types of scams defined as rug pull

1. Liquidity theft, where developers encourage their victims to invest in their most stable coins or projects by creating hype on social media .

2. The fake investor, where developers create a supposedly promising project that seems to have a lot of investors, attracting people with less experience. However, the creators are the owners of most of the wallets that contain these coins, which allows them to sell a large number of assets in a short time.

3. Project manipulation, which with some technical knowledge about exchanges and crypto assets, developers can prevent investors from selling assets without warning them in advance. Following the rise in the price of the cryptocurrency , the developers exchange all the coins and disappear with the money of the investors.

How to prevent being a victim of a rug pull

ESET shares the following recommendations to avoid falling victim to this little-known scam, but it is being carried out in many parts of the world:

1. Find out who created the project

It is important to know the history of the founders. Aside from disavowing any cryptocurrency that has scary founders behind it, it’s betteravoid any project that does not have a strong project history.

2. Beware of promises too good to be true

To attract a large number of investors, some projects may promise too high a return on investment.

If they guaranteeprofitability of 5 or 10 times the initial investment,that’s usually a red signal. They can even hire celebrities and influencers to promote the scam.

3. Fluctuations in the value of crypto

Although the increase in the price of the cryptocurrency you invest in is beneficial for investors, if the spike is very high, it could indicate that this is a manufactured boom, where project developers raise this price to attract investors with proposals . attractive.

After this boom, the creators can disappear with the assets or sell them all to recover the money of the investors. For example,an alarming fluctuation would be for a currency to increase in value a hundred times.

4. Backups

Investing in projects backed by continuous testing and code reviews is essential. Also, the support of famous figures in the world of cryptocurrencies is a good sign.

5. Liquidity project

The ability to exchange project assets for other, more stable cryptocurrencies is a good indicator of a project’s strength, but it’s not the only one.

This can be verifiedobserving the availability of liquidity funds.

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