The cryptocurrency market has experienced rapid growth, with an incredible increase in the past 11 years. The industry has many benefits for investors. However, like any other sector, there are also its downsides. Over the last few years, there have been many scams, hacks and attacks that have resulted in billions of dollars in cryptocurrency losses. One of the most recent frauds is carpet pulling.
This is a very common feature of the DeFi ecosystem which has grown in popularity over recent years. These attacks are unfortunately on the Decentralized Exchanges (DEXs), which allow anyone to use the platform without restrictions.
What are Rug Pulls?
Rug Pull is a fraud committed in crypto-assets. A developer of crypto assets creates an imaginary business and then disappears along with the money he has received from investors.
This platform, the Defi, is most vulnerable to malicious intent. It is highly vulnerable to attacks because it is not regulated. Retail investors are at risk of losing all funds they have collected or invested through the Defi project. One example of this risk is the Rug Pull.
This Crypto universe houses a number of Smart Contracts, DEFI and DEX, DApps, Blockchain based Smart Contract projects. These have provided new tools for ordinary people to invest in and expand. Financial freedom is more urgent than ever. The incredible world of cryptocurrency offers new hope and the ability for the human race learn and change their destiny.
These promises come with a potential risk. You could lose your dreams if you don’t take responsibility for your investment decisions. People would love to ruin your life for their selfish goals of making quick cash. They are not willing to take advantage of the insecure cryptocurrency market.
How do Rug Pulls Work?
Developers can use the DeFi ecosystem to create random tokens on Ethereum, and then post them on DEX. Some developers use this opportunity to trick buyers by creating tokens of low or no value and listing them on the DEX platform.
The team can trade tokens for ETH if they plan to place them up for exchange. Investors buy ETH tokens in the hope that they will be able to trade them for more ETH. The team took their ETH, vanished, and left investors with tokens of no value.
Rug Pulls refers to when one person or group of people takes out a liquid pool. This means that traders can’t trade fake tokens.
Tips to Avoid Carpet Crash
Checking liquidity Some projects are worth billions, or even millions of dollars in liquidity. You should also check whether betting is restricted in time. Real projects will keep large amounts of tokens for a long time. The tokens that are locked up can’t be taken directly out of liquidity pools. This makes it less likely that the project will be swindled.
Skyrocketing prices If the value of a simple project is rapidly increasing, it’s time to consider changing. FOMO is a strategy to attract other buyers. If you don’t know why the projected value is increasing so rapidly, you can ask. Are you aware of any information regarding the stock exchange listing? You should be careful if you don’t have any reason to doubt it.
Do background research. Seek out the goals of the project. Are you able to provide a native use case? If so, take a look at what the team is doing. Do they have a good education? What is their background? Look at their social media accounts to see what other people have to say about them. Is it a random discussion about prices or are they very popular among their followers? Legitimate projects have nothing to hide and must build a good reputation with their communities in order to gain trust and establish a solid reputation.
The bottom line
It is important to be educated and not just invest in the latest Defi projects blindly. You should not pursue your passion to earn huge returns in a short time. Otherwise, you may lose all of your assets.
They will profit from your FOMO, get-rich-quick and trap you frequently. If you are a smart and prudent investor, who asks senior citizens questions and takes calculated risks, you can protect your assets and rest well.