While you’re not guaranteed to catch every scam, you’ll have a much better shot at avoiding bad deals if you take your time and research thoroughly. If you’re putting your hard-earned money into a risky crypto project, it’s vital to understand what you’re buying and why you think it will go up in price. 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.
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Are crypto rug pulls illegal?
Another major characteristic of a possible rug pull is a coin skyrocketing in price within hours. This trick is meant to drive FOMO that leads more people to invest in the token. Of course, when you find a legitimate asset to acquire, you can use Ledger to store and protect it. The best way to store your hard-earned crypto is a hardware wallet, like us!
Famous examples of crypto rug pulls
In total, the platform is believed to have defrauded victims of over $4 billion. If a digital asset offering doesn’t have a disclosure, but seems to fit the description of a security, beware. Unlike some other industries, crypto doesn’t have a built-in cooling-off period, meaning you can’t cancel or back out of a funds transfer, in most cases. Taking your time may mean missing out on an opportunity now and again, but it may save you even more.
Crypto scams are big business, with an estimated $25 billion lost to cryptocurrency and NFT scams so far, and no signs of slowing. And with over $2.8 billion lost to rug pulls in 2021 and more than 280 rug pulls executed in 2022 alone, there’s no shortage of examples to pull from. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. Rug pulls are frequent occurrences within the blockchain space, but they are often easy to identify.
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Squid Game (SQUID) cryptocurrency
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. The project saw a significant price increase, which saw its creator, the anonymous Chef Nomi, cashing out $14 million worth instantly. This crashed SUSHI’s price from over $9 to just over a dollar in less than a week. Chef Nomi eventually sent the funds back but after extreme community backlash. Cryptocurrency projects often use “smart contracts,” which are agreements governed by computer software, not the legal system.
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In the fall of 2021, an anonymous developer known as 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. In essence, the OneCoin blockchain did not exist, and neither could the coins be used to serve the purported use case. Instead, OneCoin was a classic multi-level marketing company selling courses on cryptocurrency investing and trading with incentives for buyers to introduce more buyers.
It could either be a trade between a digital token and a fiat currency or another token. Now that we have shed light on the steps needed to avoid trezor vs. ledger review falling prey to crypto scams, it is important to note these don’t totally guarantee the safety of your funds. As the technology evolves, there will always be surprises, with hackers uncovering newer and more sophisticated ways to steal crypto funds.
- Crypto scams are big business, with an estimated $25 billion lost to cryptocurrency and NFT scams so far, and no signs of slowing.
- A market is more liquid if there are large deposits of that asset held in a pool waiting for buyers or sellers.
- This is considered a hard rug pull, as the developers created the project with malicious intent baked in.
- Other projects may deviously postpone the auditing process, but put it somewhere in the roadmap to give investors unwarranted confidence.
- It is not intended to offer access to any of such products and services.
- The project attracted a lot of interest at its height leading to a meteoric rise of 40,000% rise at its peak.
The good news for the wise and astute investor is that rug pull scams typically follow a similar path making them easy to identify and avoid. In a later section of this guide, you will learn these easily identifiable traits to look out for and protect your investments. In August 2022, the developers behind a new decentralized NFT marketplace called SudoRare drained the project’s liquidity pool six hours after going live, stealing over 514 ETH, or about $815,000 at the time. Rug pulls have increased as decentralized finance (DeFi) attracts more investors to the crypto space. In the first six weeks of 2023, there were at least 11 rug pulls, resulting in the theft of a combined total of more than $14 million, according to Comparitech’s crypto scam database. It is often the case to witness easymarkets review 2021 a cryptocurrency token scam, but with the rising popularity of non-fungible tokens (NFTs) in the recent past, there have been a few incidents of NFT rug pulls as well.
Types of crypto rug pulls
Many new projects don’t have a track record to prove their legitimacy or safety. While choosing to invest in an NFT project like Bored Ape Yacht Club is not entirely without risk, the project has established trust within its community over time. Some (not all) scams will often lazily imitate features from other popular projects, signaling that the project may not have originality or long-term value for investors.
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. A rug pull is a type of scam where developers abandon a project and take their investors’ money. Moreover, if a project is merely a clone of another or doesn’t bring anything new or innovative to the space, that’s a red flag. At best, you’re putting your hard-earned money into a low-quality project.
Once they’ve pocketed your cash, the project mysteriously comes to a stand-still. Pulling the rug out from you, its hopeful investor – you may also know this as a pump and dump scheme, or shilling. Crypto is just the latest way to do it,” says Adam Blumberg, a Houston-based certified financial planner who specializes in digital assets. But cryptocurrencies have particular risks due to loose regulations for fundraising and their emphasis on decentralization. Any project that promises sky-high returns should be carefully considered because DeFi scammers need liquidity to fund their scheme. Staking rewards and yield farming are two common features in DeFi ecosystems that scammers might seek to exploit or make false promises on.