In the fall of 2021, an anonymous developer known as best altcoins to trade in 2021 Evil Ape disappeared after taking $2.7 million of investor funds. Investors had fallen for a bogus NFT project called Evolved Apes, a collection of 10,000 cartoon apes that was supposed to include a fighting game. While the game was never developed, the NFTs exist and can still be found on OpenSea, an NFT marketplace. We’ll cover the types of rug pulls, real-life examples and how to avoid falling for one yourself. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site.
Fraudsters often attract victims with a sudden, sharp increase in the token’s value in a short period. Once the price peaks, the people behind the token sell it to generate a profit while leaving “investors” with steep losses. Some scams even use trusted key opinion leaders in the social space to gain trust. Others promise extremely high yields or offer exclusive digital goods, as seen in NFT rug pulls. Faruk Fatih Ozer, the founder of Thodex, formerly one of Turkey’s largest crypto exchanges, fled to Albania in 2021 after allegedly defrauding his platform users of $2.7 billion in funds. Before fleeing Turkey, Ozer’s company offered new registrants millions of free dogecoins, which many users say they never received.
Limiting sell orders
In this article, we have prepared for you structured and practical material covering all major points related to rug pulls in crypto in 2023. OneCoin was a cryptocurrency-based Ponzi scheme promoted as a new digital currency that would revolutionize the financial world. The scheme was run by Ruja Ignatova, who claimed that OneCoin was backed by a team of experts and had a vast network of distributors. Rug pulls often occur on decentralized trading platforms, enabling the fraudster to benefit from the pseudonymity of DEXes. If a digital asset offering doesn’t have a disclosure, but seems to fit the description of a security, beware. Whether scammers choose to cap sale amounts or rewrite code that wholly reconfigures a native token’s viability, the end goal will always be to run with the highest amount possible.
The most common of exit schemes, liquidity stealing, is when token creators extract all of the coins invested, or pooled, into a project. DeFi trading platforms require a collection of crypto tokens in order to facilitate actions such as trades, exchanges or loans, which are successfully secured via smart contracts. This safeguard is easily breached however when the developers who designed the security system did so with malicious intent, allowing them privileged access to the locked funds upon exit. Fully compromised, 8 best ways to buy bitcoin in the uk the native token loses its value, crashing to zero.
Famous examples of crypto rug pulls
The crypto world is full of anonymity and aliases, which is part of the reason fraud is so common in the space. However, you should still gather as much information about the project as you can. This could include the developers’ backgrounds, including past projects and experience.
Another example of a hard rug pull, this scheme relies on a project’s developer including restrictions on selling in their tokens’ code. While investors can keep buying, they can’t sell unless a developer allows it. Scammers then dump their tokens when they want, leaving investors in the lurch and stuck with eventually worthless assets. Typically, a rug pull begins with the creation of a new cryptocurrency token that gets listed on a decentralized exchange and paired with a coin from a leading platform, such as Ethereum.
- The developers disabled the token’s ability to be sold, and then disappeared with investors’ money.
- The crypto world is full of anonymity and aliases, which is part of the reason fraud is so common in the space.
- In some cases, rug pulls happen because the token is coded in such a way that you will never be able to sell.
- For those with coding and blockchain experience, look into the project specs.
How to Avoid Rug Pulls
Fraudsters then utilize the marketing powers of social media, launching a buzz-worthy, hype-filled promotional bitcoin mining to be banned in coal campaign across a myriad of channels to bait a community of investors. These scams often dangle empty promises of too-good-to-be-true yields or assign membership in the likes of a Ponzi scheme. With enough traction, a platform’s reach increases alongside its token’s value.
Once the price peaks, the core development team dumps its share of the tokens, making its way out with the treasury of investor funds. Projects hosted on a DeFi trading platform typically require a pool of crypto tokens for trades and loans. These tokens are ostensibly secured with smart contracts, but developers can build loopholes into the contracts allowing them to steal the pool of tokens from their investors. This is considered a hard rug pull, as the developers created the project with malicious intent baked in.
What Is a Scam?
A hard rug pull is when a developer has no intention of ever completing a project and intends to scam investors from the start, such as “hardwiring” a project’s code to leave an avenue open for theft. Instead, soft pulls tend to rely on marketing hype to falsely inflate a project’s value, and then the project’s founders shut it down and run away with the money. A more covert tactic involves blocking or limiting a users’ ability to sell coins on a trading platform, which can be manipulated at any point in time. Once an exchange has attracted a substantial amount of traffic, backend fraudsters may amend a project’s code to only grant traders the ability to buy into a platform. Meanwhile, selling of the native token is disabled — either partially or entirely — across all but malicious accounts, effectively pouring money into the wallets of corrupt developers. Rug pull tactics that specifically manipulate smart contract technology to funnel money one way are virtual traps known as honeypots.