How to Avoid Scams and Rug-Pulls

Are you looking for the next 100x token in the market which could change your life? There's thousand of crypto in the market, and getting that hidden gem is definitely not a piece of cake. And on doing so, even if you made up your mind to go all in on that low cap token, chances are high that it could be a scam token or a probable rug-pull, a worthless token designed to steal all your money. So, how do we avoid such situations? I will try to outline some of the key points that I always keep in focus on searching those hidden gems.

But before that, let me give you an example of such scams. If we talk about such scams, Bitconnect may arguably the best known rug-pull. Bitconnect was an open source cryptocurrency founded in 2016 that promised high yield for investors. This attracted more investors and drove the token skywards, well however in January 2018 Bitconnect abruptly shut down causing its token price to crash by a massive 92%. Bitconnect's founders had runoff with more than $2 billion dollar of investors funds and since then rug pools have become pretty commonplace scams in crypto. According to the researchers at Chainalysis crypto rug pools were responsible for more than $2.8 billion in illicit activity in 2021.

Now, to avoid such rug-pulls, what could we possibly do?

Avoiding FOMO

First and foremost, try to resist getting caught up in the hype around a project. I know this is hard when you see the hype around a particular coin. You see everyone talking about it and you want to hop onto it too. Specially during the bullrun, when prices are soaring and there's an almost uncontrollable urge to get in on the action and buy up tokens before they climb too high. It's that FOMO fever fueled by your friends so-called experts that you see on social media posts, telegram channels and other various platforms. So, before you blindly follow what others are doing just take a second take a breath remember the fundamentals and do your own research.

DYOR

The most important thing in this crypto market is to do your own research. At the bare minimum, you should know what the project is all about what its tokenomics look like and what value it brings. If any of these you don't know or there's no good answer to these questions; you could be looking at a token with no intrinsic value value. If that is the case and you still decide to take a punt on it, well you should know you're just straight out gambling. You can tackle these questions by jumping on crypto tracking websites like Coingecko or Coinmarket Cap and research the project thoroughly there. You should should look out for a few things in particular including the project's trading volume and liquidity depending on the token. These sites will also have information about tokenomics and the founders.

Who are behind the Project

The next thing I would advise is to research the founders and core staff thoroughly. Examine the team members' backgrounds; if you are unable to locate information about them on their website or tracking websites, look them up on Google or on social media. One such option would be to search on YouTube for founder interviews. This is great to track the founders vision and whether they are on a roadmap that makes sense. If you can't find information about the team, it is a bit of a red flag. I mean they might be strong privacy advocates and that's fair enough but they might also be scammers who are biding their time before disappearing Into thin air with investors money. So stay prudent.

Listed on Exchange(s)?

You should make sure that the project is on at least one prominent and reputable exchange. This is because prominent exchanges have quite stringent requirements in place for tokens to be listed there. This is in order to protect their customers and reputation. Now if you can't find the token on any reputable exchange that could be a red flag. For instance if it's only listed on a DEX like Pancakeswap, you should proceed with caution as they don't have any listing criteria or requirements to be clear though just because cryptos are on a reputable exchange does not mean they're immune from being a rug-pull. It just means that they're less likely to be scams.

Liquidity and Trading Volume

The token is listed on a reputed exchange, if so you should check out the liquidity of the project. Liquidity in crypto refers to how easily a coin or token can be bought or sold without causing significant price movements. You should be looking for high liquidity projects as these are less likely to be manipulated by market scammers as it's difficult for a single market participant to control the price action. Alongside the liquidity you should also be checking the trading volume. Again high trading volumes are a healthy sign, it means that there's a lot of market interest in the cryptocurrency which can lead to more accurate price discovery and reduced price manipulation.

Project Community

You need to get a sense of what the project's community is like. If it's a new project, it's not likely to have much of a community to speak of but if it's a bit more established you'll get some good insights about the project from community sources. X is the first place to check out what the project is tweeting about and how much engagement there is with the posts. Is there a community forming with questions and answers and how engaged are the admins are they answering user questions or do their posts seem to be all about hype forming. Just scan the responses and look out for anything negative read these more closely to find out if there is anything to worry about. Discord, Telegram and Reddit are other sources where you could check these by doing the same process.

These are the six key elements, I prefer to have a keen look before investing on a project, specially the low cap, probable gems! Please do let me know what did you think about these tips and what other tips do you have for people to avoid being the victim of a rug pull or other type of scam.

Thank you for staying with me!