Scams and schemes lurk around every corner of crypto investing, making navigating the landscape difficult.
Rug pulls and pump-and-dump schemes are two of the most pervasive and potentially catastrophic crypto scams.
But how do rug pulls and pump-and-dump schemes differ?
What Is a Rug Pull?
These maliciousdevelopers shill tokens on social media platformsto attract investors.
Crypto Rug Pull Examples
There have been many notable rug pulls in crypto history.
Image Credit:Adam Vilimek/Luis Louro/Shutterstock
The hype was impressive, and in less than 24 hours, investors had contributed almost $60M.
$60M is a huge amount of money.
The CEO halted trading on the exchange in the same year of the Egyptian god’s fiasco.
What Is a Pump and Dump Scheme?
Most times, unlike rug pulls, executing a pump and dump scheme requires little technical know-how.
A group usually carries out this scheme; they only have to select and invest in a target currency.
Image Credit: Huw Gwilliam/Flickr
For maximum profit and easy manipulation, the target crypto has to have a low market cap and liquidity.
Then, these “pumpers” hype the crypto on social media.
Then, the increase in demand starts to increase the price of the crypto sharply.
Once it reaches a certain level known only to the pumpers, they sell all their holdings.
This is the “dump” stage.
The supply resulting from the pumpers' sudden crypto release causes its price to plummet fast.
At this point, it becomes a rat race between the investors left with the now-worthless tokens.
The faster you sell, the lower your loss.
They also created a token, SQUID-USD, which could dive into the virtual games modeled after the series.
These developers promised the winner of each game various cash prizes.
But there was a catch that no one noticed until it was too late.
There was an anti-dumping mechanism tied to the token.
Unfortunately, this meant investors couldn’t sell.
So all owners couldn’t sell no matter what.
This was an astonishing increment of 14,300,000%.
However, to protect yourself from crypto pump-and-dump schemes or rug pulls, you must learn to spot them.
Check Price Fluctuations
Before investing in any new cryptocurrency, check the price fluctuations.
Legitimate crypto projects typically have a dedicated team and community marketing the token.
Liquidity
Before you invest in any new project, check theliquidity pool.
A token’s liquidity can tell you a lot about it.
Avoid cryptos with low liquidity (around $100,000), as they can be easily manipulated.
Check Whale Wallets
Another easy way to spot rug pull scams is to check the token allocation.
For any token you plan to invest in, check how much the top wallets hold.
They are commonly known as whale wallets.
You cancheck out the balances of wallets using blockchain explorers.
For example, you coulduse SolScan to check wallets on the Solana blockchain.
However, there are some risks not worth taking.
Before joining any crypto project, do a background check.
Ensure the project has a legitimate team, a solid liquidity pool, and normal price fluctuations.
Also, stick with regulated exchanges and exercise caution before delving into any project.
