Cryptocurrencies have grown a lot in the last few years and now you have various forms available to you. Many of the stable ones are good long-term investments, but many smaller ones are also becoming great for portfolios.
But as the popularity increases, nefarious things will also come into the limelight. One must have heard of a rug pull in crypto spaces. In theory, rug pull is when a new coin emerges and the developers pump it to increase its prices and then leave.
They leave without any notice and the investors and early adopters are left with valueless assets that cannot even be traded. They are a type of exit scam that has been plaguing DeFi spaces for a long time now.
Types of rug pulls:
The creators remove all the coins and tokens and the investors end up with nothing. The price of the coin then plummets to zero in a matter of a few hours.
Limiting Sell Orders
The tokens are coded in such a way that only the developer is able to sell them. This helps them manipulate the price of the coin and their scarcity too. This is a malicious scam that can be seen in the world of crypto.
When the developers sell their open supply of tokens in large quantities so that the price goes down is known as Dumping. It is a quick pump and dump scheme that is preceded by a lot of social media promotion.
If the liquidity is locked or the project has no certified names and investors. Then it is a great sign that there might be a rug pull in the future.