Rug Pull Scams in Crypto World - Keep Yourself Safe and Updated
A surge of new investors seeking to enter the market has coincided with cryptocurrencies' ongoing growth in popularity. As a result, rug pulls and score frauds have also become more common in the area.
Rug pulls are scams in which a cryptocurrency or NFT developer inflates the value of a project to entice investors, only to abruptly stop operations or vanish, stealing investor funds in the process. The phrase "to pull the rug out" from under someone, throwing them off balance and making them scramble, is where the name originates.
Soft & Hard Rug Pull Scams
Like in a Ponzi scheme, these schemes frequently assign membership or promise large rewards. The value of the token skyrockets once the operation acquires sufficient traction. The main development team discards its portion of the tokens when the price peaks, destroying their value and left buyers with a meaningless asset. This is a case of a soft rug pull; in a hard rug pull, administrators either stop investors from transferring tokens or add malicious defects in the source code of the project.
Worst Rug and Pull scams
Let's now examine some of the worst rug pull scams examples that have been observed across the board in the cryptocurrency industry.
1. Thodex
Based on allegations of fraud and the creation of a criminal organisation, Turkey launched an inquiry into Fatih Faruk Ozer, the creator of the cryptocurrency platform Thodex, in 2021. The company promised consumers that service will resume in five business days after announcing on its official website that it had ceased operations owing to a "partnership offer." Sadly, it never came to pass. Before Thodex went offline, its trade volume was estimated to be valued billions of dollars.
2. OneCoin
OneCoin was a Ponzi scheme that used cryptocurrencies. Ruja Ignatova, a citizen of Bulgaria, formed OneCoin Ltd. and OneLife Network Ltd., the entities that were behind the scheme. Ignatova disappeared in 2017. But not before the plan managed to raise $4 billion. Offering instructional materials was the company's main line of business; it operated similarly to a multi-level marketing system in which customers were compensated for referring new customers.
The coin was unable to be utilised for any kind of purchase and was not actively exchanged. The creator disappeared in 2017 and gave her brother, Konstantin Ignatov, power after a detention order was issued for her. After being detained in 2019, the latter entered a guilty plea to charges of money laundering and fraud.
3. Fintoch
A cryptocurrency startup named Fintoch defrauded investors of around $32 million in May 2023 through a rug pull scam. According to on-chain investigator ZachXBT, the project, which purportedly had support from investment banking giant Morgan Stanley, ran off with the money after offering consumers a 1% daily income for their deposits.
How Can Users Protect Themselves from Rug Pulls?
The following are some best practices for screening projects that, when combined with other safety precautions, can assist users avoid being duped because of these rug pulls:
● Do some research on a project before spending any money on it. Verify the developers' credentials (are they well-known in the community) for example, their track record of completed projects, and their reputation. Totally nameless teams with no history should raise some concerns. There is an additional level of risk even though some initiatives with anonymized teams are frauds. Has there been a credible third-party audit for the project? If so, check the report for any possible weaknesses.
● Engage in conversation on Telegram, Discord, and other channels with the project's developer community. Check out what people speak about the project and pose questions. A possible red sign is if the community appears locked off and unwelcoming to inquiries. Consider buying a smaller amount of cryptocurrency at first if you're hesitant about a project but are nonetheless drawn to it. This will reduce the possibility of losses.
● To avoid unexpected withdrawals from DeFi projects, make sure there is adequate liquidity and that assets have been frozen for a suitable amount of time. The white paper and smart contract usually contain this information. Additionally, see whether there are any vulnerabilities in the smart contract code that would let the creators take an abrupt profit off of the blockchain. Scams change throughout time.
Keeping up with the most recent strategies can assist users in spotting any dangers. It may be too good to be true if it seems so. In general, unrealistic promises or returns are cause for concern.
Lastly
Even while scammers and hackers are still targeting DeFi protocols, there are steps you can take to avoid investing in dubious initiatives. Furthermore, authorities and law enforcement organizations are stepping up their efforts to combat cryptocurrency scammers, demonstrating a greater desire to hold scammers responsible and deter unethical behaviour.
In the end, none of these techniques are 100% reliable, therefore you should always rely on your best judgement. To navigate the space responsibly, be careful to protect your digital wallets and teach yourself about different kinds of cryptocurrency scams.