Last week, while the crypto market was in the middle of its continued downturn, the Day of Defeat token fell by over 90%, which translated into investors losing over $1.3 million.
According to a report by blockchain security firm CertiK, shared with Economy Middle East, the drop was a textbook example of a rug pull scam, something the token has categorically denied.
A rug pull is a crypto scam in which a developer promotes a new token, and then disappears with the investors’ money. Rug pull scams accounted for $2.8 billion in lost money in 2021, according to blockchain analysis company Chainalysis.
Here’s how you can spot a rug pull and save yourself from losing your money.
First and foremost, you should verify the credentials of the developers promoting the coin. You should always invest in cryptos with reputable people behind them and stay away from tokens backed by anonymous developers.
All cryptocurrency projects are required to subject themselves to an audit by an independent third party. Again, research the audit report yourself, rather than taking the token’s word for it. The auditors should have checked the token both for its finances as well as its code.
Sometimes scammy tokens place restrictions on the selling. But these aren’t always visible to the investors since this malicious restriction is placed in the crypto’s code, and can only be unearthed by a capable auditor.
Legit cryptos are also often liquidity-locked. This means their developers, in a bid to build trust, renounce their control of the liquidity pool by locking it within their blockchain or with a trusted third party. This is especially useful since, without such a lock, developers can easily run away with your investment.
And finally, like with any investment, if something sounds too good to be true, it probably is. Cryptos that promise unrealistically high yields are at best high risk, or at worst, a scam. We aren’t saying that every crypto project that promises great things is a scam, but you should be cautious of them.
Finally, before you put your hard-earned money into any crypto, make sure you use the various online tools to check the project’s authenticity.
There’s Token Sniffer that lists all the latest hacks and scam coins. Another is Rug Doctor, which analyzes the crypto projects and its code looking for tell-tale signs of rug-pull strategies. It assigns a risk score to all analyzed cryptos and also explains the red flags it discovered in the project.
