Have you ever heard of people getting scammed by meme coins? Or have you ever heard of people getting scammed by artist or influencer coins? Here, follow this thread, I will discuss how to detect the scam.
If in a sideways market like this, the “fraud scheme” of this meme coin will be very rare because there is no market euphoria. These individuals will have difficulty finding liquidity so they can sell their goods at a high price to realize their profits.
So, this thread will prepare you when the Bull Market comes, the hope is that all of you who read this thread can avoid this Scam!
Anyway, I also often share tips and tricks about trading, psychology on my telegram channel, Billionaire Trader. You can also join through this link: https://t.me/BillionaireTrader99. Just join, it's FREE!!!
Let's get into the first topic, What is Rug Pull?
Rug pull is a term used to describe a fraudulent scenario where developers of a cryptocurrency project WITHDRAW LIQUIDITY from the platform, leaving investors WITHOUT anything. This usually happens to new projects, where developers can raise funds from investors hoping to make a quick profit.
“Short” Scheme of Rugpull:
After raising enough funds, the developers then “rug-pull” by selling all their tokens and disappearing. As a result, the value of the tokens plummeted, and investors suffered huge losses.
There are several types of rug pull that commonly occur:
1. Liquidity Rug Pull: Developers create tokens and provide liquidity on a decentralized exchange. After investors buy tokens, developers pull liquidity, making the tokens almost worthless.
2. Contract Rug Pull: In this case, developers create smart contracts with security holes or code errors that allow them to withdraw funds.
3. Team Rug Pull: The developers or team behind the project had bad intentions from the beginning. They created hype around the project and after getting enough funding, they ran away.
Just For Info, There are some statistics about how much loss is experienced by traders or investors due to this Rug Pull:
1. According to a report from Chainalysis, in 2021, around $2.8 billion was lost due to rug pulls and other scams in the cryptocurrency world. This is a significant increase compared to the previous year.
2. In 2021, around 41% of rug pulls that occurred were related to meme tokens. Meme coins are often easy targets for rug pull scams due to the rapid hype and buzz.
3. Recent data shows that rug pulls are still a major problem in the Cryptocurrency Market, it is estimated that more than $1.4 billion has been lost due to rug pulls in a short period of time.
This is only 2023. What about 2024? Let's see what the data looks like in the future. The main message here is that there are still many people who are being scammed and it is actually causing losses to their portfolios.
The characteristics of meme coins that are often risk factors for the opportunity to become a RugPull are:
- Hype and FOMO (Fear of Missing Out): Meme coins are often built on quick hype and often lack solid technical foundations. Investors may be tempted to invest without doing adequate research.
- Anonymity of Developers: Many meme coin projects are not transparent about who their developers are. This opacity provides an opportunity for rug pulls to work because no one knows who the developers are, and who is doing the scam.
### Real Example Rug Pull
One of the famous examples of rug pull is the “Poodle Coin” project. After its launch, the price of this Token skyrocketed as people talked about it on social media. However, after reaching its peak, the developers sold all their tokens, and the token value immediately fell, leaving investors with huge losses.
Another example is the “Squid Game Token”, inspired by the popular Netflix series. After experiencing a sharp price spike, the developer withdrew all liquidity in the project and disappeared, leaving investors defrauded.
Now that we have discussed rug pulls and meme coins, let’s see how to avoid them, especially when investing in meme coins.
1. Do Your Own Research: Before investing, make sure to do thorough research on the project. Check the whitepaper, roadmap, and vision of the project. Does the developer have experience and credibility? Also check their presence on social media platforms and communities.
2. Liquidity Analysis: Make sure the project has provided enough liquidity. Check whether liquidity is accessible, and how much liquidity is allocated for trading (coinmetrics). A good project should have enough liquidity so that investors can sell tokens without causing a drastic price drop.
3. If a project promises unrealistic returns, be wary. High-potential investments always come with commensurate risks.
4. Join forums and groups about cryptocurrency to get the latest information especially the community can provide warnings about suspicious projects.
5. Portfolio Diversification: Do not put all your money in one project. By diversifying your investments, the risk of rug pull can be minimized. Entering or taking a position in Meme Coin should be considered as "Additional Gain" only, because the big risk of Meme Coin cannot be predicted.
Therefore, it is very important for us to know how to divide the risk, measure the risk, and know what we are buying before we take action to buy or sell.
Stay aware, and keep growing together, okay!!
