Rug pulls are a harsh reality in the exciting but treacherous world of crypto. Malicious scammers lure investors in with promises of 1000x, only to yank the rug out from under them, leaving investors with nothing but empty wallets. If you have every traded memecoins onchain then you might have noticed the liquidity of each coin, that liquidity is what gets pulled leading you with bags of the coin that you cannot sell.
How to Spot a Potential Rug Pull
These are the things that need to be looked into when you are considering aping into a memecoin:
- High Token Holding by Creators: If the development team holds a large percentage of the tokens (often exceeding 10%), this is a red flag. They could dump their holdings, causing a price crash.
- Contract Scanners: Tools like RugCheck and TokenSniffer analyze smart contracts and highlight potential risks, such as mintable tokens and high token holdings by developers. While these tools are not foolproof, they are very useful in analyzing a token very quick so you dont have to waste time looking into everything and end up missing a potential gem.
- Trading Tools: Bots like Trojan, BananaBot or Bonkbot on Telegram, allow you to set up automatic selling points if the price drops below a certain level, which can help mitigate losses if a rug pull occurs. My personal favorite is Bullx (https://t.me/BullxBetaBot?start=access_7U31N69BV3R) since it has a proper UI you can use to monitor easily while setting buy and sell limits.
Common Techniques
Understanding how rug pullers operate will help you recognize potential scams before investing.
1. The Art of Dilution
Some rug pull contracts allow creators to mint more tokens at any time, increasing the supply and effectively diluting the value of existing tokens.
2. The Exit Tax Trap
Deceptive creators might program the contract with a reasonable buy tax but then set an high sell tax (sometimes exceeding 90%), making it almost impossible to sell your tokens without massive losses.
3. Pump and Dump
Rug pullers may create social media frenzy to drive up the price artificially. Once enough new investors buy in, they dump their holdings, and the price collapses.
Stay Vigilant
Dont fall for the Larps on social media saying person x or y bought this memecoin for $100 and now has $1,000,000 in a week of holding, its very unlikely for that to happen to you. This is typical gambling mindset you find in a casino especially if you suffer from main character syndrome (lol). You should always invest small in memecoins and prepare to lose it all, whenever an investment does a 2x-3x immediately remove your investment and let the rest ride or keep taking profit at set intervals.