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Most importantly, as you look to different NFT projects to invest in, make sure the project has a “story” or heart that gives the project meaning, direction, and a clear roadmap of where it’s headed. Without these, you are simply investing in the unknown and positioning yourself in a situation that could cost you everything. Certainly, with high-profile arrests of other bad actors in the crypto and NFT spaces, the Frosties case may dissuade copycats from attempting to imitate the scam. However, even with federal agents keeping a closer eye than ever on Web3 for foul play, our laws might have some catching up to do.

A well-known NFT collector by the name of Pranksy was browsing through a Discord channel when someone shared a link to Banksy’s website, informing him that a new page called ‘NFT’ had been created. The ranking is based on the total amount of money that was stolen in the process. The media is rife with reports of people making substantial amounts of money in this booming sector, adding fuel to the mania. Global interest in non-fungible tokens surged in 2021 with a total trading volume exceeding $13 billion according to research from The Block.

Account abstraction is the process of making it easier for users to interact with blockchain by customizing… Proof of Reserves is a method of using cryptographic https://cryptolisting.org/ verification to demonstrate possession of digita… In white-label staking, the crypto holders get their validator node explicitly created for them.

The following examples represent some of the highly publicized incidents in which investors lost a significant sum of money due to crypto rug pulls. Hopefully, once you have gone through the list, you will have a more concrete idea as to why rug pulls are a real threat to your investments. Additionally, these examples should serve as a wake-up call for you to be vigilant and better guard yourself and your capital.

Since not all cryptocurrency projects are legitimate, it’s critical to understand how to protect yourself from common scams. Our findings suggest a whopping $25 billion and counting has been lost to cryptocurrency and NFT rug pulls and scams to date. Within days, investors had spent over $3.36 million buying SQUID, and the developers used this opportunity to run off with the funds. In most respects, rug pull tokens look just like any other cryptocurrency, abiding by their respective blockchains’ fungible token standard.

It’s only listed on DEX and has few token holders

Check to see whether the team has revealed their identities, if not, then that is a red flag. Also, check the social media channels to see how much interaction the project is getting. The team may have bought followers to make the project seem more popular than it really is.

If their identities are visible, be sure to check out their social media accounts and other available information to see if they interact with other known people in the space and have legitimate followers. One of the biggest rug pulls to take place in the crypto industry is the Squid game crypto rug pull, which took place in late 2021. A coin that has risen in price within hours is another common feature of a rug pull. A rug pull coin, for example, might jump from 0 to 50X in just 24 hours.

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If there are only ten or so holders in a pool that’s supposed to keep millions of dollars, something fishy is going on. Most rug pullers only copied and pasted the code of some other coins and then edited the content a bit. Think of it like paraphrasing Wikipedia, but only changing a few sentences.

• Built In strives to maintain accuracy in all its editorial coverage, but it is not intended to be a substitute for financial or legal advice.
• 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.
• While it’s not unheard of for people to use pseudonyms in cryptocurrency, reputable developers often have websites and references that can establish their credentials.
• Savvy investors are always looking for projects in their early stages that appear to be bound for success.

Without the signature large amount of team-held tokens that could be taken in a rug pull or exit scam, a project could be considered unruggable. Once the NFT project launches and users mint the collection — usually at a set price — the developers may transfer the funds out of the ecosystem and vanish, effectively executing a NFT rug pull. Creators may also wait for the NFT prices to rise to a certain level before siphoning all the funds from the community. At the peak of its performance, the website was taken down and the promoters were unable to be reached. The liquidity suddenly vanished, sending the value of the token plummeting to near zero while the developers took home more than $3.3 million. Over 43,000 investors had the rug pulled out from under their feet as they suddenly become holders of a worthless token.

In the case of token dumping, sometimes tokens recover if the project still has viability in the market. However, the most common outcome from a crypto rug pull is that investors never recover their funds. Also known as “pump-and-dump” schemes, these rug pulls operate off of fabricated public hype, often fueled by social media. Their aim is to lure swaths of eager crypto investors, enlisted to balloon the value of a shiny new token tied to a trending, up-and-coming project.

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Our partners cannot pay us to guarantee favorable reviews of their products or services. Auditing is essential, especially when done by an external and independent security firm. Depending on how many tokens they hold and how many of these tokens they flood the market with, the price of the asset could fall significantly, resulting in losses for other token holders. There are several versions of this scam, but the end goal for the scammers is to exit with the most amount of tokens.

To protect yourself from rug pulls, make sure to do diligent research on projects. This will include looking at the state of the product, its tokenomics, token distribution method, liquidity, and team. You can minimize your risk by making sure the above are all as transparent as possible and verifiable. For instance, token dumping may cause negative effects on the market, but it is not illegal. On the other hand, liquidity theft is against the law in most jurisdictions.

Since there’s nothing in the project’s code that sets it up for failure, some people categorize “pump and dump” schemes as «soft rug pulls.» An NFT rug pull similar to a crypto rug pull is a malicious attempt by nefarious project promoters with the intent to defraud unsuspecting investors. This kind of scam happens when unscrupulous NFT creators heavily promote their project to investors pumping up its demand then abandoning it once they have seen a significant increase in their tokens. In this guide, you will learn about cryptocurrency-related rug pull scams.

Although anyone can buy these tampered tokens on DEXs, they can’t sell them. Developers can write commands in their token’s code to ensure only they have a say on when to liquidate these digital assets. Because DeFi is inherently decentralized and largely unregulated, it’s easier for fraudsters to hide their identities and make off with a significant amount of crypto. In this kind of scam, the developers typically allow investors to buy their tokens but either limit or disable sell orders. They could limit sell orders right from the start of the investment period or much later when they are looking to lock in their spoils.

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Investments may seem like a good way to get wealthy, but they can make you poor just as easy. Unfortunately, new crypto scams pop up every so often, so we’ll continue to be on watch. A hidden mint is an exploit that allows one or more externally owned accounts to mint new tokens using a hidden function within the token contract. After calling the mint function, the scammer dumps the extra tokens in the market, rendering the originally minted tokens that users hold worthless. Grier recommended only investing in projects in which the core team uses real-world names and credentials.

The process is referred to as locked liquidity, and it stops project owners from withdrawing any of the assets in the pool, making it impossible to pull out. The longer the liquidity pool remains locked, the fewer the chances of a rug pull. One common scam in the crypto space is called a “rug pull,” where a developer or creator will promote a project such as a new coin or NFT release and then disappear with investor money. The perpetrators of rug pulls are difficult to track down after the fact, as the decentralized and pseudonymous nature of blockchain allows those involved to conceal their identities.

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Types of rug pull token smart contracts

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The colorful NFT collection was announced in 2021 and quickly became popular, promising long-term utility and staking features. In January 2022, the 8,888-edition NFT collection sold out and, according to the U.S. Department of Justice, two men behind the project shut it down soon after and transferred the funds to various cryptocurrency wallets under their control. In 2014, self-proclaimed “crypto queen” Ruja Ignatova and others set up a Bulgarian-based cryptocurrency company called OneCoin Ltd. Ignatova and her cohorts allegedly made false claims about the coin and its perceived value to solicit investments. Any project that promises sky-high returns should be carefully considered because DeFi scammers need liquidity to fund their scheme.

Many NFT collections also require users to get on the «whitelist» to be able to mint — further driving the exclusivity of the NFT collection. In this article, we have created a list of the top NFT rug pulls as they are called, where project founders have run away with investors’ funds and failed to deliver on their promises. Most rug pulls don’t bother setting up a convincing public profile in case investors decide to seek self-assurance.

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