re is nothing scarier for any investor than a financial scam, especially one that erases all of their investments in a project. Such events are not just a cryptocurrency enclave. 2008 Stock Market ashes caused by Lehman Brothers, too big to fall, caused a devastating sweep of people’s savings globally.
carpet scam is one of these terrifying scams, even if it is not quite within reach of the massive traditional financial crisis that sets entire economies back several years. So what is this carpet scam, how does it happen, and is there a way to reduce your susceptibility to it?
What is Rug Pull?
Rug Pull is a scam that has plagued the crypto world of late, especially the Decentralized Finance subsection. scam occurs when the developers of an outgoing bolt head to the hills with money from project investors. Thus, they essentially pull the rug off investors’ feet, leaving them counting huge losses.
How does it happen
Developers can do this by aggressively advertising the project first and making large investments initially to increase its appeal. Investors who now consider the project viable and profitable end up investing heavily to do it again. y are generally intertwined with a dumper whale investor whose high liquidity transfer actions in the project serve to attract even more investors.
forces of supply and demand naturally drive prices up over time. And that’s all the developers and the whale have been waiting for all this time. Once prices have reached their preferred targets, they organize an exit by drawing all the liquidity they can get. action triggers massive market shocks that send prices plummeting, well below what investors took, sometimes falling to zero.
Cases most likely to avoid
While Rug Pulls can theoretically occur in any project, be it in cryptocurrencies or traditional finance, some very likely cases are. se cases have several inherent vulnerabilities that make them the most exposed. y include;
Small new decentralized exchange projects
A new, small decentralized exchange (DEX) has all the characteristics of tensile susceptibility. Although, this does not mean that everyone is guilty of this. y most likely don’t appear to have any inherent benefits to the industry, but they seem to fuel a huge outcry from investors.
First, decentralized exchanges do not have quote audits like their centralized exchange counterparts; anyone can list the tokens at any time. Second, it is fast and easy enough for anyone to create a blockchain token like Ethereum due to its open source nature.
Such exchanges generally have some of the best returns and also tend to have a dark protocol. refore, they will pair these tokens with fairly common cryptocurrencies like BTC or ETH to attract investors before removing the scam.
How to Reduce the Susceptibility to Carpet Traction DEXs
Avoiding them requires vigilance on your part. To begin with, you need to check the liquidity in a group at the price of the tokens in the group. Most legitimate DEXs typically have algorithms that determine price levels based on the available token balance. But this is not entirely sufficient, as the price can also be influenced by other factors.
It is also advisable to avoid projects whose prices rise suddenly in a few hours without real causal action such as updates. You can also check the blocks in the pools. Most of the time, a legitimate DEX will freeze the group’s liquidity for specific periods.
Small projects of new cryptocurrencies
Decentralized exchanges aren’t the only suspects; Entire blockchains can also be potential suspects. re are around 5000 various altcoins, most of which are very small and new.
Typically altcoins are launched backed by innovations or concepts in an attempt to grab a slice of the crypto market pie. Otherwise, they are launched with a good solid use case, within a certain geographic area of operation or to attract a certain clientele. objective remains to try to gain market share.
However, if a new blockchain and cryptocurrency is launched without any inherent innovative features or target market, it is quite debatable. Many times the blockchain will lack an open source protocol, even with some obscure ones. protocol. Where blockchain data can be accessed, various wallets (usually owned by developers) control a significant amount of liquidity.
How to Reduce Susceptibility to Carpet Traction Block Chains
re are several features that you can look for to avoid such potential blockchains. First of all, small new coins whose prices go up in a few hours or a day without a significant change in the main blockchain should be avoided.
It is also wise to try to avoid a blockchain that does not appear to have a clear trajectory of market penetration beyond relying on a whale investor. You should avoid this if the blockchain itself doesn’t even have an innovative feature on the table, but is still enjoying steep price increases.
Worse still is when the developers and a whale or two have most of the currency’s liquidity. refore, small meme coins are a likely source of Pull Rug scam as they meet all of the above red flags.
Vigilance is always recommended when investing in any project; re is always the possibility that your investments will end up in the sewer. Online investment opportunities that involve relying on hard-earned currency are even riskier.
Cryptocurrencies are a fairly profitable investment avenue, and many billionaires and institutions notice them. However, vigilance is recommended to avoid a carpet scam. This article provides clear guidelines on how to avoid the hazards that a fall from a mat pull maneuver can entail. Of course, playing it safe to safeguard your investments is always a wise move.
png «/> png» class = »avatar avatar-96 photo» height = »96 ″ width =» 96 ″ loading = »lazy» />
Adam is an outgoing boy who likes adventures and discovering new things. Despite her boring life, she loves writing about cryptocurrencies and exploring what blockchain technology can do for the next digital world where all adventures will be virtual.
Read Also Binance Puts Its Weight Behind Cardano’s Alonzo Hard Fork