On October 2017 the founder of one coin disappeared into thin air without Trace after millions of people have been defrauded of their hard earned assets, they all believed the lie that one coin will be the best crypto so far.
On April 2021 theodex exchange close down with billions of people's investment, dog coin is another project that got over $60 million from investors and close down within 24 hours there was no liquidity to thread the coin and this lead the price of ANKH token to zero.
Squid game token was a launched by an influencer on binance and this project also scammed investors of over 3 million same with mutant ape planet which is also known as map nfts that also scam people of over $3 million.
All the aforementioned scam happened through what is known as rug pulls in cryptocurrency , let's do a little breakdown on rug pulls because even recently investors both large and small are becoming victims.
Definition of rug pulls.
Rug pulls are notorious because is a type of scam conducted by experts, this experts will withdraw all liquidity in An exchange either decentralized exchange or decentralized finance protocol and before investors realized it they are left with nothing even if they are seen any token it will be valueless.
You can imagine standing on a rug all of a sudden someone just unexpectedly pull the rug eventually you will fall without hope and support because your two legs are off the floor.
There are various types of rug pulls knowing them will help any investor to be clever while investing in a project.
Classes of rug pulls.
Typically rug pulls is classified into two major form the soft rug pulls and the hard rug pulls.
Then others like;
The Governance rug pulls.
Developers change the governance process and they complicate everything given them opportunity to move funds.
Firstly the notorious developer will get large amount of token involved in the project given them the authority in decision making and more voting power after which they will submit a proposal that everyone participating in the project might not understand.
It might involve changing some rules, changing some codes as well as contract permissions, because they have a large amount of voting power due to the amount of token their holding they can be able to manipulate and make others join in voting their proposals which is a trap, so immediately they get full support of investors they will execute their mission leaving investors with nothing.
A case study of governance rug pull is that of Eminence Finance that happened in October 2020, the hackers changed smart contract permissions and made way with millions of Dollars of people's investment.
The Liquidity pool rug pulls.
Liquidity pool means pooling liquidity of a token.
The malicious scammers will create a token in Defi system and they will pair it with a well-known cryptocurrency initially there will be liquidity to convince investors, they will also create awareness on social media adverts community groups that will inform investors of the project.
As participants buys the tokens so liquidity will be increasing and the project will look more legit and attract more investors once this malicious actors gets to the level they want they will pull their liquidity leaving investors with no liquidity to sell their tokens even if they can sell there will be just little liquidity that will cause them to lose a lot of money.
A study case of liquidity pool rug pulls is that of Meerkat finance that happened in March 2021 where developers stole over $31 million of BNB and BUSD in one day by draining the liquidity pool.
The Token contract rug pulls.
Tokens are stolen through the back door created by developers, seriously this is a very bad act that developers will create a token and also create a back door mechanism where they can withdraw unknowing to the fund owners, they can even freeze investors fund if not well secured.
Same process they take in liquidity pool rug pulls is same in token contract rug pulls, they will do all in the best of the ability to attract investors to the affect projects with mouth watering rewards for the investors once they get the amount of funds they need they will freeze the token and transfer it to their wallet.
Snowdog DAO is a case study of token contract rug pull that happened in the year 2021 when developers use hidden functions to drain liquidity pool and stole people coins.
Identify them and avoid them.
It is very important to pay close attention to few important things before investing as an investor, wether big or small.
Firstly if a project is from an anonymous developer is as good as come because there is no transparency in such project.
Secondly if the rewards are two mouth watering is very important for an investor to trade with caution, thirdly if the project smart contract is unverified or have not been approved by third party it is very likely that they are might be some malicious secret code.
Also if liquidity are not locked for a period of time depriving developers from withdrawing of funds whenever they like that is a bad sign, it is also very important to know that if there is no white paper that will serve as road map to explain to a greater scale what the project is all about this is also a red flag.
It is also important for an investor to give attention to how token of the project is being distributed to different wallets because this will give him a hint of how legit the project is.
summary.
Developers will not get tired of scamming and also investors will always look for good and profitable projects but whenever a project sounds too good to be true, has a lot of reward, lacks transparency it will be beneficial for an investor to make thorough research before investing his assets.