It almost happened; I almost lost it all in a crypto scam. Not really, though. I mentioned this briefly in the article that we posted. What is a rug pull, but I wanted to dive a little deeper into it?
Before we start this story, I want you to know that we don’t participate in many scams. This was actually for educational purposes only.
To understand how degen yield farms really work. By the way, if you don’t know what a degen yield farm is, go check out our article on it.
The day was March 3rd, and I had just tossed a few hundred dollars into a degen yield farm to see if it was going to pump and dump. And I was kind of curious if the 42,000 APY was actually real.
Now the project looked promising, and it had all the characteristics I had looked for. It had locked liquidity, the social media page was blowing up, and the white paper said it was solving a bunch of problems, but sure enough, it was just another dredged rug pull.
I personally was lucky enough to get all my funds out after I realized as soon as it launched. The code made it so that the harvested tokens were sent to the developer’s wallet address when you tried to harvest your interest.
I got out, but the people who waited an extra five minutes after the launch weren’t so lucky. Welcome to Shavuna, the number one site for crypto education. Here we explain topics of the cryptocurrency world using analogies, stories, and examples so that you can easily understand them.
In this blog post, I am going to explain seven signs that you can look for to avoid a rug pull.
Let’s dig right in without skipping a bunch of formalities.
What Are The Signs of a Rug Pull?
- Similar Layouts
Now, this might not be a definitive sign, but it’s a good start. Have you ever noticed that all the yield farms have pretty much the same layout?
This is because they are easily just reusing the original code from the goose swap degen yield farm to host their site.
This is important because you can tell if something is a scam by the amount of time that someone took developing it.
For example, did they just spend 10 minutes outsourcing some new images or using google images, or did they spend a couple of weeks coming up with a brand new design to host their new company that will help further crypto technologies?
Some platforms take months to build before launching, while degen yield forms can literally be set up in minutes.
However, checking the amount of liquidity is a very powerful indicator of how likely a token is to be a scam. For example, any token with ten thousand dollars in liquidity can easily be manipulated to double or triple, or quadruple the price.
But it also means the developer doesn’t have much money to invest in the token.
On the other hand, a token like Uniswap actually has around 34 million dollars in liquidity. If you’re new around here, liquidity refers to the amount of value in tokens that can actually be traded.
They’re actually our best blog posts, and probably because they’re so awesome.
- Social Authority or Social Proof
Remember how your favorite influencer told you that honeybee or Cummies was the next big project and that they would match it if you bought some?
Well, this is another big sign that a rug pull is evident. If you notice large influencers promoting projects that they have no part in, good projects will advertise themselves; they won’t reach out to influencers, especially generic a-list celebrities promoting a coin or especially a token that isn’t bitcoin or Ethereum.
Most A-list celebrities aren’t going to look at the code of how that coin works, let alone even visit the website and read the white paper or the project’s road map.
You don’t let these people pick your job or your future stocks or your romantic partner, so don’t let them choose your coins or tokens either.
- White Paper
Do you know how when you go to buy a course or a product that everything on that specific sales page has been psychologically vetted to make sure it’s the best to get an emotional buying response out of you?
Now, I know this for a fact because these pages can take months to perfect, but when they do even, I get giddy reading through them.
Well, this is the same as a white paper. Good projects have solid white papers. Will they give you stats diagrams and the problems they’re solving?
If the white paper is a few pages, it’s not a white paper; it’s a sales page designed to get you to invest your money. Maybe that’s what you’re into, though.
- Looking Deeper into the Code
Moving on, one of the best ways to avoid a rug pull is simply to look at the code of the smart contract or the token code.
There are many ways to do this, but the best way is to go to your favorite blockchain explorer and use the contract inspecting tool to heck.
What am I saying?
This is supposed to be a simple explanation of how to spot a rug pull. You guys aren’t going to do any of that. Lucky for you, I’ve got the hookup.
First, you want to go check out the project on rug doctor; they have a website dedicated to actually reviewing the smart contract code and identifying common rug pull techniques.
They then use their website rugdoc.io to inform the visitors of these scams.
Secondly, you’ll want to bookmark tokensniffer.com. Tokensniffer is a fantastic website that compares a ton of tokens and how similar they are.
If the token is 100% or even 80% similar to another token, it’s not unique, and that’s a huge red flag for rug pulls.
Why create a unique token when you can just copy and paste some code and scam some degens?
5. Check the Wallets
Here’s some advice that you might actually use a blockchain explorer for. Most explorers for the Ethereum or Polygon, or Binance smart chains will let you look at all the tokens out there.
Pop in your token address, and you can see a list of all the top token holders who hold that token.
If more than 20% of all tokens are held by one wallet, or even if the top 10 wallets hold more than 20% combined, you could be getting rugged.
The idea here is that one person could sell all of their tokens which is a large majority of the tokens, and crash the price.
This is actually probably the easiest way to spot a rug pull.
- Total Value Locked
Regarding investing in a project and not a specific coin, you can actually check out a metric called TVL or total value locked.
TVL is the total dollar amount of coins and tokens invested into the project.
For example, AAVE, which is a well-known blue-chip borrowing and lending platform, has over 20 billion dollars invested in it. Compare that to a degen yield farm.
I saw on a subreddit crypto moonshots that recently launched with around a hundred thousand dollars total value locked.
A hundred thousand dollars is still a lot of money but nothing in comparison to the 20 billion dollars AAVE has or the 10 billion dollars that Curve finance has.
Lastly, we want to go over what to do if you’re involved in one.
The first thing you should do is remove your investment if you notice that it will be rug pull, which can be trickier. Sometimes there are time locks where you can’t withdraw within 48 hours of your initial opening.
Secondly, you should probably tell everyone else about the rug pull. Maybe you can share via the discord or the telegram.
Thirdly you should reach out to the rug doctor, and maybe they can add the token to their list.
Lastly, you should subscribe to our newsletter because if you read this article, the chances are that you avoided a rug pull in the first place. At least that’s our hope.
To summarize this article, in an out of order fashion:
- Invest in projects that already have a bunch of money in them.
- Do your due diligence by checking popular rug pull lists.
- Check wallet amounts.
- Join a project’s community and ask specific questions about their white paper.
- Reach out to us, and we would love to check out the project for free.
As always, thank you guys for reading this article. I hope that you enjoyed it. I hope that you’ve learned something, and most of all, I hope to save you from a rug pull. I’ll see you in the blog post.