Memecoins can be a double-edged sword, offering the potential for huge gains or devastating losses. The first step to making money with memecoins is learning how to avoid rug pulls, a common scam in the crypto world. Hereâs a breakdown of the different types of rug pulls and how to anticipate each one.
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In the World of Memecoins, Survival of the Fittest đ
Only a small percentage of people make significant profits, while the vast majority lose money. About 99% of memecoins experience rug pulls, leaving only 1% to profit significantly. To be part of that 1%, mastering the art of anticipating rug pulls is essential.
Letâs dive into the types of rug pulls and how to avoid them:
1⣠Liquidity Pull đ§
What It Is:
- Definition: The developer adds liquidity to a trading pool, receives LP (liquidity provider) tokens, and can withdraw the liquidity later.
- Execution: After trading starts, the pool fills with valuable assets (like SOL or ETH) and empties of the memecoins. The developer then drains the pool, rendering the memecoin worthless.
How to Avoid:
- Check if LP is locked: Use tools like Rugcheckxyz (Solana) or Token_Sniffer (EVM).
- Be cautious of temporary locks: Ensure the LP isnât just locked temporarily, as this is a common trick.
2⣠Developer Holding Large Supply đ§âđ»
What It Is:
- Definition: The developer mints 100% of the supply and retains a significant portion, giving them too much control.
- Red Flag: If the developer holds more than 5% of the supply, itâs a sign of potential manipulation.
How to Avoid:
- Use Block Explorers:
- Solana: Copy the token address into Solscan, navigate to "Holders," and analyze the distribution.
- EVM: Use a block explorer, click on the "Token Tracker," and check the holders.
- Look for distribution: No single holder should possess more than 10% of the supply.
3⣠Supply Distributed Across Multiple Wallets đŒ
What It Is:
- Definition: The developer mints the initial supply across multiple wallets they control, making it harder to analyze.
- Execution: The developer could hold a significant portion of the supply across several wallets, each containing a small percentage.
How to Avoid:
- Analyze the Mint Operation:
- Solana: Use Solscan to check how many wallets received the tokens during the mint.
- EVM: Check the "ERC-20 Tokens Transferred" section on the block explorer.
- Identify suspicious distribution: Multiple wallets holding small percentages could indicate a rug pull.
4⣠Mint and Distribute to Multiple Wallets đžïž
What It Is:
- Definition: The developer mints a large portion of the supply and distributes it across several wallets they control, creating the appearance of fair distribution.
- Detection: This method is relatively easy to detect since it involves direct transfers between wallets.
How to Avoid:
- Use Bubble Maps:
- Go to Bubblemaps, paste the token address, and observe the connections between wallets.
- Look for direct links: Suspicious links between wallets could signal a rug.
5⣠Launch Batch Buying đ
What It Is:
- Definition: After adding liquidity, the developer uses multiple wallets to snipe the token, acquiring a large portion of the supply without it being noticeable.
- Execution: This technique pumps the price to create FOMO (fear of missing out).
How to Avoid:
- Check Early Transactions:
- Copy/paste the LP address into the block explorer and filter for the first day's transactions.
- Look for new wallets sniping tokens right after liquidity was added.
- Identify suspicious wallets: If new wallets are sniping early, itâs likely the developer is involved.
6⣠Malicious Elements in Contract Code đ
What It Is:
- Definition: The developer inserts hidden code that allows them to perform actions like minting tokens, blocking sales, or unlocking liquidity.
- Execution: Even with a verified contract, a skilled developer can hide malicious elements that arenât immediately visible.
How to Avoid:
- Check if the contract is verified and ownership renounced:
- Use Rugcheckxyz (Solana) or Token_Sniffer (EVM).
- Use Smart Contract Scanners:
- DeFi offers a free scanner that analyzes vulnerabilities in the code.
- Paste the token address into the scanner to check for any hidden risks.
Stay Vigilant, Stay Safe đĄïž
Developers planning a rug pull are constantly innovating, but since everything is on-chain, these actions can be anticipated. By following these steps and being aware of the common rug pull techniques, you can avoid 99% of the risks associated with memecoins.
Being informed is your best defense. Stay smart, and happy trading! đč