Whether you like it or not, scam tokens are an integral part of the cryptocurrency market and they are not going away. The reason for this is that the decentralization and open access factors that characterize the cryptocurrency market allow these to exist. A few years ago, launching a scam token required a whole team and technical knowledge, but today with the advent of tools like pumpdotfun, creating a cryptocurrency can be done with the click of a button and costs no more than $5. So avoiding these tokens has become a necessity, especially if you are new to the cryptocurrency market.
All cryptocurrencies are scams until proven otherwise.
This title may seem shocking to some, but it is a reality that you must accept to protect your wallet from losses. Over the past years, scammers have exploited many loopholes, whether in the design of the currency, its project, or even in the team responsible for it. But in this article, we will focus on one type of scam, which is known as “Rug Pull”.
What does Rug Pull mean?
The term Rug Pull refers to fraudulent operations, especially in new digital currencies. The name comes from the analogy of a person standing on a rug that is suddenly pulled out from under him, causing him to lose his balance or fall.
Rug Pulling is done in several ways, the most prominent of which are:
Withdraw liquidity.
The project team is exchanging large amounts of currency.
Currency contract manipulation.
Withdrawal of liquidity
This type of scam occurs when the founder of the coin withdraws liquidity from decentralized exchanges, meaning that the scammer took the buyers’ money and ran away from the project. To avoid this type of scam, you should make sure that a large percentage of the liquidity is locked, meaning that the founder of the coin cannot withdraw it easily.
You can check this information using tools like RugCheck on the Solana network, where you can enter a coin contract and see its details including whether liquidity is locked. For example, for this randomly selected coin, the liquidity is locked at 98.7%.
Currency exchange by team
This type of scam occurs when the project team sells their share of the coin. This usually happens in the medium term and not immediately after the coin is launched, as the coin’s value is initially low.
To avoid this type of scam, there are two ways:
Follow the founder's wallet: You can use Explorer to check the founder's wallet and how much coins he owns.
Tracking Large Wallets: Sometimes, a coin team will try to spread their coins across multiple wallets to hide the amount they own. You can use tools like Bubble Maps that visually display the largest wallets and show the relationship between them. If you notice a correlation between large wallets, those wallets may be owned by the team and may be used to sell the coin.
currency contract manipulation
The coin contract may contain loopholes that scammers can exploit, such as the ability to mint more coins, stop sales, or impose a high sales tax. So to check the security of the coin, especially if you do not have the technical knowledge to read the coin contract, you can use tools like Token Sniffer which analyzes the contract and provides a comprehensive report giving you a coin rating out of 100.
Ultimately, despite the effectiveness of these tools, no tool can detect all scam coins. The idea behind these tools is to reduce your chances of being scammed, but they do not eliminate the risk completely. Therefore, managing the risk in your portfolio is essential, and carefully researching the coin you want to invest in and not relying entirely on the tools will help you avoid scams.
