Rug Pulling Checklist Part 1

In the English language, rug pulling basically means to remove support from something. In the cryptocurrency context — especially the decentralized finance niche, rug pulling refers to having the liquidity pool which is the backbone of decentralized exchanges (DEX) removed.

This leads to a sell death spiral as other liquidity providers, token holders and traders sell off their equity to salvage their holdings. Explained in clearer terms, rug pulling is a new form of exit scam by cryptocurrency project creators where the owner drains the liquidity pool and leaving the token holders unable to trade.

Rug pulling initially started on Uniswap. Since anyone can create a token and smart contract on Ethereum and list it on Uniswap, some bad actors came up with rug pull operations. They begin with creating new tokens, creating Telegram groups to market it, and get words about it out. This is followed by listing it on a DEX like Uniswap and adding liquidity to it.

Once liquidity is added, this malicious token creator allows people to swap their assets for the newly minted coin, after which he would drain the liquidity pool, leaving holders with nothing but a worthless coin.

Amount lost to Rug Pull in 2021

Several millions of dollars have been lost in the cryptocurrency niche via rug pull schemes. The first major rug pull event on Binance Smart Chain saw over $30 million worth of BUSD and BNB drained from Meerkat Finance and it has been tagged as the most significant and largest-ever decentralized finance scams in history.

Anti-Rug Pull Checklist

• After thorough research and deep insight into rug pulling activities, here are some checklist you need to tick so that you can be confident that the project is a genuine one to invest in:
• Project use case: Check if the product has use cases that will attract investors in the future and drive more progress.
• Check project roadmap: Checking the roadmap to see the event and activities outlined and their proposed timestamp will help you know if a project is indeed genuine. While checking the roadmap, and note whether they have been accomplishing or rescheduling events. this will give you a sure red light if they are indeed shady.
• Check project registration date: Use https://who.is/ to check if the website is just registered one day before the project. It is also a possible red light.

Blockchain

• Check the top wallets to know when they get the tokens? Is the wallet created around the same time as the project…etc if this is confirmed, then it’s the team wallet.
• The majority of new projects promote that there is no Dev token, how then will they fund the project?
• Check some dips date from the chart and check the transactions see if any big wallet was selling a lot, then try to identify if this wallet is usual investor or team wallet (by checking the date of wallet, is it only traded mainly for this token or a lot of other tokens..etc), for any new token, the team would cash out over time anyway, but you don’t want to be with a project when they cash out as they don’t care about the market, neither their investors.
• Try to ask for proof for things like liquidity burnt — some projects just promote that some liquidity is burnt while in reality, it isn’t.

Finally, these are just some of the few metrics and details to look out for when doing your due diligence before you invest in any project. If you would like us to carry out a rug pull assessment on any project, you can reach out to us with the details of the project and while you watch out when we release the details of our finding. Stay tuned for more top-quality information from us.