What is a rug pull and how to avoid it?

A rug pull in cryptocurrency is when the founding team suddenly abandons a project without warning, taking with them investors’ money. Seeing that the larger cryptocurrency sector is yet to be fully regulated, especially the decentralised finance (DeFi) space, there is no recourse for investors to recover their lost money. 

The folks doing the rug pulling can do so by emptying a liquidity pool, cash out with no warning, or block investors from selling their tokens or coins. 

Remember the Squid Game token that was created following the massive hit series Squid Game? The founders froze the token after it surged 230,000% and disappeared with $3.4 million before the token collapsed to zero. 

There’s a saying in cryptocurrency, don’t invest in it if you don’t understand it. This is sound advice, given the plenty of unregulated room sketchy projects have to manoeuvre. 

Red flags to watch include anonymous developers and founders, a lot of hype with little to show for it, low total value locked (TVL) in the project, and disproportionate token distribution. Now, these don’t necessarily mean that a project is dodgy but beware if it ticks all the boxes. 

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