Hey, in this video, I’m going to tell you
how to avoid rug pulls in crypto! Have you or your friends ever been “rug-pulled”? Have you ever come across an enticing crypto
project that offered otherworldly returns, only to eventually find out hat it was a scam
all along? As cryptocurrencies become more and more popular,
there’s an ever-increasing number of rug pulls happening, as well. This is why it’s super-important to be able
to spot a potential rug pull before it happens, so that you wouldn’t lose out on your entire
investment! Welcome you to Crypto Finally Explained – the
most crypto-friendly educational YouTube channel for *actually* learning crypto! Here, I finally explain crypto topics using
simple animations, visual doodles, and real-life examples, so no matter if you’re five, or
seventy-five, you’ll be able to understand it! In this video, we’re going to cover rug
pulls.
Specifically, I’ll tell you how you can
spot a potential rug pull, and what measures you can take to avoid it! Let’s get to it! 1. What is a rug pull? If you’re new to rug pulls, in general,
and haven’t got the slightest clue of what they are, you should stop everything you’re
doing now, and go watch my dedicated video on the topic. I won’t go in-depth on what a rug pull is
here, since this video is meant to serve as a continuation to that other one I’ve just
mentioned.
To keep it short, a rug pull is a type of
a crypto scam. Rug pulls happen when project developers or
owners run away with the investors’ funds – in other words, investors get “the rug
swept out from under their feet”. That’s where the term came from! As I’ve already told you a minute ago, with
crypto becoming more and more popular, there’s a surge in rug-pulling activities, as well. Never before has it been so crucial to learn
to protect yourself from the various scams floating around the internet! This is even more so true when you consider
the fact that there are multiple different rug pulling techniques that these scammers
employ.
Don’t worry, though – no matter how many
different ways they might come up with scamming investors, the methods of how to spot and
avoid a potential rug pull always remain the same. 2. How to spot and avoid a potential rug pull? Continuing on with the video, let’s take
a look at 5 of the most common signs that a project could be a potential rug pull in
the making.
If you notice any of these signs, you should
be cautious – if you notice all of them, well… Haha, I don’t think I even need to say it
out loud! Do keep in mind that just as these signs could
signal a potential crypto project rug pull in the making, the same is true for NFT projects,
as well.
Many of these same signs should be examined
and looked into, when you’re trying to find out how to avoid an NFT rug pull. 2.1 General outlook / social authority So, for starters, when you’re looking into
a crypto project, you should first examine the project from afar. What I mean by that is how do they do their
marketing? Is there a legitimate community that believes
in the project and its purpose? Or are mainstream celebrities and high-profile
YouTubers talking about it? Most legitimate projects aren’t going to
do sponsored videos from YouTubers, or social media posts from celebrities. That’s because they know that a) it looks
fishy, and b) neither those celebrities, nor the YouTubers likely know anything about crypto,
or at least the project that they would be promoting. As you can imagine, in this scenario, the
whole entire ordeal would come off as rather disingenuous! Solid and well-designed projects don’t tend
to go out of their way, and search for non-related, high-profile names to promote them. Instead, all of the marketing is done by the
actual company or team behind the project, and the community that they’ve managed to
attract.
So, in short, the very first sign that a project
might be a potential rug pull is if you notice that there are suddenly a lot of high-profile
people, who would otherwise have nothing to do with crypto, talking about a specific new
coin or token. I have to say, though, this can get tricky,
since sometimes, the actual influencer are the bad guys. If you want an example of what an alleged
rug pull looks like, one of the most recent high-profile cases would be that of the streamer
Ice Poseidon, and the CxCoin. Paul Denino – better known online as Ice Poseidon
– had created and advertised a platform for content creators, where they could get paid
in cryptocurrencies. Then, after investments started flocking in,
he took almost all of the money out of the project, and appears to be quite shameless
about it! This just goes to show that even online stars
themselves can allegedly rug their fans. Thus, you should be very cautious! 2.2 Liquidity The second sign that you should look out for,
if you want to avoid rug pulls, has to do with project liquidity.
It’s a whole huge topic, but what you need
to know for now is that a project’s liquidity can definitely tell you a lot, in terms of
a potential rug pull! If you check out the liquidity of some sort
of a new project (or, token), and see that it’s very low, that’s already a red flag. Projects that have liquidity up to around
$100k are often seen as being very easy to manipulate! Think about it yourself – if there are only
a few thousand dollars worth of tokens in the liquidity pool, the project owners could
simply deposit $1000 into the pool, which would artificially increase the price of the
token significantly! Put simply, if a project has low liquidity,
it means two things – that the team behind the project haven’t invested a lot of their
own money into it, and that the price of the token behind the project is very easy to manipulate.
This actually leads us to the second part
of this liquidity-related sign of how to spot a rug pull – locked liquidity. What this term essentially means is that the
team behind a token has locked the liquidity of their project, for a specific period of
time, and they won’t be able to access it. This is a good thing! If developers or project owners lock liquidity,
there's a much smaller chance that they’ll rug pull the project, since it becomes much
more difficult to do. Of course, there are still ways how scammers
are able to do their scamming, but it’s still a point of reassurance! Note, however, that the liquidity should be
locked for a longer period of time.
If it’s locked for a month or even a year,
well… That’s nothing, really! It’s as if a thief would come to you, and
say – hey, don’t worry, I won’t steal your money… For a month. After that, well – we’ll see, haha! Of course, do keep in mind that not all situations
are the same – unlocked liquidity isn’t an immediate sign that a project is a rug
pull, since there are many variables to keep in mind, and many different projects with
different goals and mechanics. That being said, if you see that a project
hasn’t got locked liquidity, you should be very careful! By the way, if you’d like to learn more
about liquidity – what that is, how it works, and so on -, you can check out my dedicated
video on the topic! Also, if you’re enjoying the video so far,
make sure to press that subscribe button, and give this video a like! 2.3 Token allocation The third major thing to look into is token
allocation.
In other words, you need to check out how
many tokens are held in a few of the top wallets (also known as whales). Thankfully, that’s super-simple to do! There are special services called blockchain
explorers. The two most popular ones are Etherscan and
BscScan – on them, you can enter the smart contract address of any project built on the
Ethereum or Binance Smart Chain networks, respectively, and check a list of wallets
holding the most project tokens. If you see that the top 10 wallets hold over
15% or 20% of all of the available tokens, this is a tell-tale sign to stay away from
that project! What could happen is the whale wallets could
decide to dump all of their tokens into the market, thus crashing the price of the token
in a matter of minutes. Checking project token allocation is completely
free to do, and typically takes only a few minutes. Make sure to do so with all projects that
you are planning to invest in! After all, it’s one of the simplest ways
of how to spot a rug pull.
2.4 Check the project Whitepaper – Roadmap Number four has to do with the Whitepaper
of the project. Imagine a friend came to you, and told you
about “this amazing new company” that he invested money into, and he suggested you
do the same. Well, before going out there and putting your
money into that company, you would probably try to do some research on what it is that
they do! Part of your research would surely include
looking into the company’s mission statement, its roadmap, and so on.
Well, cryptocurrency projects are the same! If you want to avoid getting rugged, checking
out the project’s Whitepaper or its roadmap is essential! Many rug pulls in the making don’t have
solid Whitepapers. Instead, they are filled with random crypto
buzzwords, and are usually very short. If you read through the Whitepaper, and come
out understanding less than you did before checking it out, that’s a clear sign to
stay away from the project! Whitepapers are also a great way to get to
know what the project is all about. A good rule of thumb for you to follow is
this – if the Whitepaper looks like a sales pitch, and appeals to your emotions (in other
words, desperately tries to sell you something), it shouldn’t be taken seriously, at all. 2.5 “I’ve seen this before” Now, the fifth and final method of how to
avoid a crypto rug pull is something I like to call “I’ve seen this before…”.
You should imagine me saying this with a really
suspicious expression on my face, hahaha. So basically, it’s pretty simple – if you
feel like you’ve seen this exact project model a few times already, you might be getting
rugged. That’s because most scammers don’t bother
with creating a new and enticing project – instead, they simply copy-paste the code from another
project, and only change a few variables, such as the name of the token. This is true both with the way that the project
is presented, as well as the code behind it. If you know what you’re doing, and where
to look, you could basically “create” (or, copy, haha) a “new” cryptocurrency
project in a matter of hours, if not minutes.
That sounds very dangerous, if you’re an
investor. However, it’s also a good thing, since it
makes picking and choosing the right crypto project for yourself much simpler! If you feel like you’ve already read that
Whitepaper a few times before, or have seen this exact same marketing gimmick again and
again, you should probably avoid investing in the project, since it might end up being
a rug pull. 3. Thanks for watching There are various other ways how you can spot
and avoid rug pulls, but I’ve told you about five of the most common and notable methods. If you spot any of these within a project,
or are simply feeling that something isn’t quite right, you should avoid investing your
money into it – this will potentially save you from a huge headache in the long run! Thanks for watching my video – I hope that
you’ve enjoyed it, and learned a lot! More so, I really hope to see you in my next
video!