Given cryptocurrency’s rise in value over the last few years, it’s not surprising to see that people with malicious intent are trying to get in on the action. One of the methods they use is the crypto rug pull and it’s something that may scare off a lot of people from getting

2. Given cryptocurrency’s rise in value over the last few years,
it’s not surprising to see that people with malicious intent
are trying to get in on the action. One of the methods they
use is the crypto rug pull and it’s something that may scare
off a lot of people from getting into
cryptocurrency. That’s is why is important you use a rug pull
checker service like tokensniffer to check for Scams before
investing in a new token/coin.
What is a crypto rug pull?
- What is a crypto rug pull?How does a crypto rug pull work?
Types of crypto rug pullsSigns
of crypto rug pulls to watch out for
- Real-world examples of crypto rug pulls
- Tips to avoid a crypto rug pull
- It pays to do your own research. Related posts:
A rug pull is a fraud scheme that tricks people into investing
money in a fraudulent product. In this case, with an offer for
an incredible deal, an investor is enticed to invest their
hard-earned money (or, in some cases, Bitcoin and other
cryptos) into a token.
Essentially, what happens then is that the token developers
abandon the project, taking their investors’ money, and
leaving little to no trace—thanks to the anonymity offered
by the exchange.
How does a crypto rug pull work?

3. The reason that a rug pull might work with crypto is that
there are fewer regulatory entities present in the
transaction. This is why most crypto rug pulls happen on
Decentralized Exchanges (DEXs).
DEXs are platforms wherein transactions are strictly
between the two parties involved. That means no one is
there to regulate the deal and make sure that each party
follows the rules. Keep in mind that a rug pull can happen
not just on DEXs but on Centralized Exchanges (CEXs) as
well.
Types of crypto rug pulls
To help you safeguard your investments, it’ll help to
understand how these frauds might be done.
Generally, a rug pull can fall under these two categories:
Technical manipulation
-
These types of rug pulls are the more technical approach,
tricking the victim into buying tokens that can only be
bought, not spent. They do this by altering the code’s
function that “allows”
transactions to be done with the token.
Token transactions require this approval for the smart
contract embedded in the code of these tokens. Without
that approval, users who own these tokens will find that
they basically have no value.
Liquidity fraud
-

4. This will be the more common scheme that people will be
trying to pull as it requires less technical knowledge. Instead
of altering the token’s code, people attempting this rug pull
will be pairing an altcoin with a popular cryptocurrency, say,
Bitcoin.
What happens next is that the creators of the new token
copy the contract code of other tokens.
With this, they create publicity around their token, making
sure that it is trending and thereby attracting more and
more buyers. They’ll be adding to the liquidity of the token
on DEXs, making the product a lot more enticing than it
should be.
Remember the smart contract they copied? Well, this is
paired with each of the tokens being traded, locking in the
transactions in a liquidity pool. Once they’ve locked in
enough transactions (many of which are people simply
trying to make some money by buying in early), they ditch
the project.
Signs of crypto rug pulls to watch out for
Now that we’ve defined what a rug pull is and the different
ways it can be pulled off, let’s take a look at what signs you
can watch out for to avoid falling into that trap.
No information about the development team
-
Remember what we said about the anonymity of the token
creators? Keep an eye out for signs of trouble when there is
no information available at all. This is especially true if their
accounts are all recently created as well.

5. They only provide vague or ambiguous whitepaper
documentation
-
Token developers will usually have a whitepaper to
accompany their token to give their audience a deeper
insight into how their token functions. With no clear
methodology or goals, it might be time to look at other
options.
Yields or returns are too high
-
It’s like what we’ve said before about things being too good
to be true; if either projected or initial yield looks too good
to be true, then it probably is.
There is a disproportionate focus on marketing aimed
at drumming up hype
-
Earlier this year, we published articles discussing how social
media and crypto influencers can have a big impact on the
hype surrounding a token or a cryptocurrency. Be wary of
these trends as these could be part of a fraud strategy.
No locked liquidity pool from investors
-
Token creators should have a stake and invest a certain
amount of their own money in the token you’re considering.
If this is not the case, it might be a rug pull.
Real-world examples of crypto rug pulls

6. We’ve talked about how these rug pulls are done, in theory.
Now, let’s take a look at some real-world examples of
successful rug pulls.
Compounder Finance
-
2021 saw Compounder Finance, a Decentralized Finance
(DeFi) platform, pull off a theft of 10.8
million USD in customer funds. This rug pull was a result of
the developer team substituting the secure and audited
contracts with flawed alternatives, allowing them to dump
the project with all their investors’ money. A big factor here
may be the fact that they copied the name of a legitimate
DeFi protocol, Compound Finance.
Thodex
-
In this same year, Thodex saw its founder, Faruk Fatih Özer,
flee to Albania with an estimated two billion USD in
customer funds in April when the DEX was suspiciously
closed. The reason they were able to get away with so much
money is thanks to their user-base of 390,000 people.
Squid Coin
-
Most recently, the Squid token garnered enough investors to
bring the value of their token up from 628.33 to 2,856.65
USD within just 10 minutes. Not long after that though,
prices dropped to just 0.0007 USD. Once all the confusion

7. was done, people were left staring at an empty website with
zero leads on the developers of the token.
Tips to avoid a crypto rug pull
As a crypto trader, your job now is to figure out how to work
around all these traps that people have set up. Don’t worry,
for that we have a few tips handy: Review any
whitepaper, documentation, and code available
-
Avoid rug pulls by learning as much as you can about the
product being sold to you.
Documentation is key here so don’t let all the reading
discourage you. Take some time to understand how the
project started, why the creators are doing things the way
they are, and what the goals of the developers are.
Look up the creators on social media
-
Find out what you can about their previous successful
projects, if any. Performing this due diligence can be the key
to figuring out who might be behind the token. Getting an
idea of who the developers are should give you a better
understanding of how they do things.
Check token liquidity
-
Keep in mind that legitimate tokens on the market are
usually accompanied by millions in liquidity.

8. That being said, this should be one of the metrics to keep in
mind when you’re looking for tokens to buy, making sure
that the liquidity of the token for consideration falls within
the appropriate range.
Find data about coin holders
-
Remember: the majority of coin holders should not just be
the developers themselves. The reason for this is that the
larger their share of the holdings, the more control they’ll
have on the market.
If all the coin holders are just the developers themselves,
that’s a sign that the value of that token is only given by the
creators and not determined by the actual demand of
traders like yourself.
Compare holders and listings data on DEXs
-
Compare the numbers of declared coin holders and the
listings before purchasing anything. The reason for this is
that coins, again, should be held by more than just the
developers themselves and should be sold proactively. That
said, a coin that has only a few holders on file and is being
sold quietly can be a sign of a rug pull waiting to happen.

9. Document Outline
What is a crypto rug pull?
How does a crypto rug pull work?
Types of crypto rug pulls
Signs of crypto rug pulls to watch out for
Real-world examples of crypto rug pulls
Tips to avoid a crypto rug pull