This content was originally published in May 2024, and has since been updated in December 2024.
Rug pulls are a notorious scam in the crypto space where developers vanish with investors' funds, leaving worthless tokens behind. In 2024 alone, over $473 million worth of crypto has been lost to hacks and rug pulls, with over a hundred incidents each month. Here’s how to spot these scams and protect your investments.
The Risk of Unlocked Liquidity
Red Flag: Unlocked liquidity means developers can withdraw funds at any moment, posing a significant risk.
Tool: Use Dexscreener to check liquidity status. A locked icon indicates security, while unlocked liquidity is a major red flag, especially for new meme coins.
Case Study: A solo crypto investigator reported that a dozen of Solana’s meme coins, which raised over $26 million in pre-sales, went dead in just over a month due to unlocked liquidity.
Centralized Control and Developer Authority
Red Flag: If developers control the mint and freeze authority, they can mint unlimited tokens and freeze accounts, which is highly risky.
Why: This control allows developers to manipulate the token supply, facilitating a rug pull.
Token Distribution
Red Flag: Developers often distribute the token supply among many wallets they control, enabling market manipulation.
Tool: Use Bubble Maps to identify suspicious token distributions. Concentrated holdings in a few wallets are a warning sign.
Community Engagement and Transparency
Red Flag: Minimal comments or interactions on social media and forums indicate a lack of genuine community support.
Why: The absence of likes, followers, and engagement is a red flag.
Undefined Token Utility
Red Flag: Tokens with unclear or dubious utilities, often linked to unknown websites or Telegram groups, are suspect.
Why: Legitimate projects have clear, transparent use cases. Vague descriptions suggest a potential scam.
Additionally, if the header image is AI-generated, this can be another red flag indicating a lack of genuine effort and transparency from the developers.
Crypto-based investments are often exploited by scammers, making it hard for investors to distinguish between legitimate and fraudulent opportunities. Our research examines crypto communities, social media, and blogs to identify risks, using a blend of research, analysis, and ongoing monitoring.
While we strive for accuracy in our content, we acknowledge that errors may occur. If you find any mistakes, please reach out to us at pr@nominis.io. Your feedback is appreciated!