How to Protect Yourself from Rug Pulls
Most of the youths in the world today are searching the internet on how to earn money online, including me. In Nigeria, crypto, digital coins and online investments are gaining popularity. There is a high tendency to join since many people have heard of friends or relatives who have made easy money. However, concurrently, there are a lot of risks and one of the largest risks is what is known as a drug pull.
A rug pull occurs when the individuals behind a crypto project pull off with the money of the investors in a sudden move, resulting in all individuals incurring losses. It is as though you were investing in a shop and one morning you rise up and realize that the shop is shut down overnight only to find that the owners have vanished. This is quite painful and it has occurred to a number of individuals. This is the reason why it is highly important to learn the methods of defending against rug pulls.
The initial method of guarding against rug pulls is to research prior to investing. It is very easy to fall into this trap of rushing in to a project because it is trending on social media. Others go to the extent of purchasing coins because it is being discussed by their favorite celebrity, influencer or friend. However, unless we conduct the due research we are just gambling our money.
I now pause and research on the team members before committing resources in to a project to find out whether their names and faces are real and whether they have undertaken other projects previously. In the event, the project has no obvious details regarding those behind it, then, that sends a red flag. Studies can be time consuming, not to mention it spares you spending your hard earned money.
The second step that is vital is to carefully observe the whitepaper and objectives of the project. A whitepaper is similar to the plan or document which describes what the project is about. Most of the bogus ventures prepare bewildering or copy-and-paste whitepapers, which do not actually clear up anything. When the whitepaper is not sensible, or the project has unrealistic aims, this can be a rug pull all too soon. As an example, when an opportunity comes in the form of a coin that promises to raise your profit 1000 percent in one week, you should understand it is too good to be true. Actual investments are not instantaneous and improvement does not happen immediately.
It is also prudent to see the liquidity and smart contract of the project. Liquidity in crypto is the funds in a pool that enable individuals to purchase and sell the coin at will. In case there is not sufficient liquidity in a project, or the liquidity is easily removable by developers then it is dangerous. I have come to know that these are websites and tools which can be used to determine whether the liquidity of a coin is locked. When the liquidity is not spread at least to a specified number of months or years, the developers can withdraw the money whenever they wish and vanish. Rug pulls just occur this way.
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Hyping and neglecting security audits is another large error made by young investors, such as myself at one time. There are good projects and bad projects whereby some of them are very good in marketing and poor in transparency. The smart contracts of a real and serious project ought to be audited by a third party that is trustworthy. An audit implies that specialists have inspected the code so that it does not harbor some secret tricks that may enable the developers to loot money in the future. In case a project lacks an audit report, then it is dangerous. The presence of an audit is good even in cases where there is an audit, it is good to read the audit or at least ascertain that it was prepared by a reputable company.
Never to invest in excess of your means of losing is one of the most powerful safeguards against rug pulls. Things are very difficult in Nigeria and many citizens are in need of quick doubling of their income. This desperation will at times lead us to making the wrong investments. This is one of the things I have learned that however good an opportunity might be, you should never risk money that you are not prepared to lose. When you are not able to sleep at night due to the amount of money you invested into a project, then you had invested excessively. This is a rule which has spared me more serious regrets. Although a rug pull may occur, you will not be totally ruined financially when you just put a small, affordable amount.
Community behavior and transparency should also be watched. True projects tend to have an open communication. The team provides periodic updates, provides answers, and reports progress. The fake projects, however, can overlook hard questions, remove comments or even block individuals who request information. When you observe such a conduct, interpret it as a caution. A powerful project embraces inquiries and rebates but a rug pull project evades the reality.
Finally, I think it is prudent to learn never-endingly. The world of cryptos is evolving rapidly, and fraudsters also do not fall behind. The less you read, watch and know, the less you will be safe. I subscribe to reliable crypto news outlets, watch seasoned investors and note of scam red flags. The best defence is knowledge. The better informed you are the less easily will anybody fool you into a rug pull.
Reflecting on the experiences I have listened to and the errors I have made, I now realize the fact that rug pulls are very dangerous. They may occur to anyone, be it a rich or poor person, a young or an old person. However, we are able to be safe in case we are cautious, tolerant and disciplined. In my case, the excerpts have been obvious: do your homework, do due diligence and auditors and whitepaper, verify liquidity, seek audits, invest intelligently, watch the community, and continue learning.