How To Do Research (DYOR) Before Investing And Avoid Rug Pull

Quick Summary

  • Always do your own research before investing so you can avoid rug pull. You can avoid that by looking at xerox layouts, liquidity, whitepaper, and some website tools.

Cryptocurrencies are trustless, decentralized, virtual assets. The trustless environment of cryptocurrencies offers a peer-to-peer atmosphere where people can make the transaction without knowing each other and without the involvement of any third party. The decentralized nature of cryptocurrencies offers the freedom to take the control of assets, however, this also means there is no to call if something goes wrong.

This ‘trustlessness’ and decentralized nature is exploited by scammers in many ways to implement rug pulls or crypto scams. The rug pull is a mechanism where the developer or team of a cryptocurrency project abandons the project or flees with the investors’ funds. Scammers use the approaches of “Yanking Liquidity”, selling a large number of shares, and the inability to sell the assets. If you are still not sure about what is a Rug Pull and want a deeper dive into the topic, consider reading this article.

related: What’s Rug Pull Or A Crypto Scam

How to spot a rug pull?

Xerox Layouts

Scammers want easy money by shortcuts, so they don’t want to spend time writing codes and whitepapers and developing websites all with new layouts. They just choose an open-source project, copy its code and layout, and voilá, the project is ready to fool around.

Liquidity

You can do a liquidity check only if you are investing in a token as big projects like AAVE and Compound, which have billions of dollars to provide liquidity. Lower liquidity means it is easier to manipulate the price of a token to 2x, 5x, and even 20x with a small amount if the liquidity is a few thousand dollars.

Whitepapers

The daydreaming scammers don’t pay much heed to their whitepapers as it takes time and hard work. A good whitepaper includes statistics images and numbers to explain the use case of the project with a very practical roadmap. 

Website Tools

The first website RugDoc can help you read the contracts and point out the problems. A similar website called TokenSniffer can also check malicious contracts to warn investors about scams.

Conclusion

To conclude, make it your habit to go through a proper research mechanism. The hack is to do everything yourself and not fall for the traps laid by people winning referrals and huge cuts from your loss. Scammers are becoming smarter every day and they use advanced approaches to snatch off hard-earned money. Do proper research before investing and if you sniff even a smaller error, don’t let the coaxing promises blind you.

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sources: tokensniffer, rugdoc, https://www.youtube.com/watch?v=YFaqng3YESE&t=269s&ab_channel=WhiteboardCrypto

author: Rene Remsik, mnmansha

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.