Crypto Tips & Tricks: How do you recognise rug pulls?

Introduction

As stated in the title, that article is about rug pulls: how do you recognise projects which can potentially exit scam and avoid them?

First of all, let us say that there is no general rule to know if a crypto project will do an exit scam.

You can only guess if the team behind a project is gonna do a rug pull. Nevertheless, there are indicators which can help you assess the risk of such event.

You will have to answer the following questions before doing anything.

  • Is the code open source and accessible to anyone?

  • Has the code been audited?

  • Is the team anonymous?

  • Is the project a fork of another project?

  • What is the project goal? Is it achievable?

Is the code open source and accessible to anyone?

It does seem straightforward that the code behind the crypto project shall always be open source but a lot of people tend to forget about it and simply *trust* the team behind.

If a code is not open source, nobody can check the code and anything can be written such as a function to mint an unlimited amount of tokens to market dump all and do the rug pull.

If the project has a community fund and a DAO to manage it, make sure that the code is open source, so that you can check that the team does not have any secret access to it.

Tip: Check that the code is open source and accessible on Github/Gitlab. If not, it shall be seen as a first warning sign. It obviously does not guarantee a rug pull, but the possibility is definitely here.

Has the code been audited?

An audited code is better than a non audited code.

However, an audited code does not guarantee that the team will not do a rug pull. If the code has been audited, look for the audit report and check the issues raised by the auditing firm. Have the issues been addressed by the team? Is the audit company legit?

We have already see fake audit reports and fake audit companies so double check that part.

Obviously, if a project has not been audited, you take a higher risk but it does not mean that the team will do a rug pull.

Tip: check the audit report and do a quick research on the audit company (website created, followers, other reports, team behind: who are they? Are they anonymous?).

Is the team anonymous?

Not necessarily a bad thing if the team delivers on its promise. Great projects can be run by an anonymous team.

However, when rug pulls happen, the team is always anonymous. It is a fact. Obviously who would reveal his identity and scam everyone afterwards? Better stays anonymous to do that.

Is the project a fork of another project?

What is a forked project? It is a copy paste of an existing project or a part of it. It takes much less time to copy paste the smart contracts of a well known project than do it by yourself.

Forks are more likely to lead to rug pulls due to the tiny amount of efforts put in place to actually build something.

What is the project’s goal? Is it achievable?

What is the team trying to achieve with that project? Is there a real utility behind the token?

For example, farming for the sake of farming is not a sustainable business model. If APY is too high it is because you are the crop to be farmed. There is no free lunch in this world and nobody can sustain an APY north of hundreds of %, even in the crypto world.

Another example: if the project aims to do something unrealistic, it is likely not going to happen. Crypto is already a very competitive environment, even more regarding DeFi built on Ethereum so chances are that your new super cool project promising to revolutionise AMM or land a rocket on the moon will likely fail. Before it fails, it will also likely trigger the rug pull and exit scam with what’s left of project funds.

Conclusion

Detecting potential rug pulls is not rocket science. We can only use our brain to avoid them. Always do your due diligence of the project you are willing to invest into. Ask yourself the above questions and double check everything.

Once you do that, you will avoid many costly mistakes and stop giving away your hard earned money to scammers.

Don’t trust, verify!

If you would like to get our analysis on a specific project, let us know on Telegram @gg0099 or via Twitter: @SecretSalsa_

Thanks for reading

Secret Salsa


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