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Preventing Rug Pulls

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Rug pulls are very common in the crypto space. It is a type of exit scam in which creators of such crypto products inflated their price and valuation to attract more buyers and suddenly sold to cash out so that the market will tank into the near-zero valuation. So how to spot rug pulls and prevent them?

TL;DR

Rull pulls are preventable if you follow these 10 steps.

Categories

There are 3 categories of rug pulls so far. Liquidity stealing, limiting sell orders, and dumping.

Liquidity stealing happens when liquidity pools in Defi products suddenly withdraw all money and bring valuation to zero.

Limiting sell orders happens when a crypto product has embedded codes to prevent the selling of tokens or to prevent investors to cash out.

Dumping happens when creators of crypto products or developers suddenly sell all their digital assets to exchange cash and leave investors alone.

Each of the categories above happened unexpectedly and quickly without any warning.

Rug pulls Can Be Illegal

Some countries or regions make rug pulls illegal. According to Hong Kong Regulators and Crypto Exchanges, only licensed crypto-exchanges will be allowed to operate and any suspicious or fraudulent activity may be brought into the police investigation. Both claims can bring criminal or civil charges. However, those may apply if there is a requirement of KYC or Know-Your-Customers.

How to Spot A Rug Pull

Here are steps for you to reference and follow:

Step 1: read documentation

Doing your own due diligence can help you to understand the crypto products while helping you to avoid potential rug pull. Start with their whitepaper and roadmap if they have any. Looking particularly into reference citations to see if those references are credible.

Step 2: Check online

Research online such as coinmarketcap.com or coingecko.com to get yourself familiar with their community or any other data. The key is to gather as much information as possible.

Step 3: check developers

Pay particular attention to the identification of developers and their holdings of tokens, anonymous or large concentration on a few developers’ holdings are all red flags signs of potential rug pulls.

Step 4: check liquidity

Pay attention to low liquidity or no liquidity locked. Those signs are rug pull potential red flags. Low liquidity means you may not be able to cash out. Liquidity locked level should be between 0% to 100%. If there are third-party lockers that may give more security to the crypto products rather than self guarantees lockers from developers themselves.

Step 5: check codes

No audit codes are dangerous. There is a rug pull potential if there are selling restrictions embedded in as hidden codes.

Step 6: check market movement

Overnight success or price skyrocket is a sign of rug pulls. Don’t let FOMO control you, let logic help you to find out what this product is really and how it should work from their statements.

Step 7: check yields

If yields are too good to be true, then such a product likely has a rug pull potential. Compare it with similar products to get a general idea about annual percentage yield (APY).

Step 8: research feedback

Try to join their community or check their blockchain to see if there are comments and feedback on the products. Many users will leave their feedback in comment sections to help others. Community channels are also useful. Reach out to their team and asking questions before purchasing anything is a key to helping you avoid rug pull.

Step 9: ask reference

Try to post your questions online and ask others to help you to understand the products. The more responses you get, the less likely you will encounter rug pull.

Step 10: share results

Last but not least, share your thoughts about the products online and help others to understand them. It helps everyone to aware of one experience and learns from it.

In Conclusion

Rug pulls are avoidable if you do your due diligence. It is a learning process rather than clicking without thinking. Try to take it slow and learn, rug pulls can be prevented.

Check out my another article Wormhole Hack – It May Not Be a Bad Thing

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UK Extends Crypto Tax Break for Investment Managers in Financial Reforms

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UK Extends Crypto Tax Break for Investment Managers in Financial Reforms



In a package of financial services reforms unveiled today, setting out how to replace European Union banking and financial-market laws, the Treasury said it would extend an existing tax break, which allows investors to use a U.K.-based manager without drawing extra tax liability, to the crypto sector. The change will be made via regulations this year.



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Turkey has an obsession with crypto — specifically Dogecoin: Study

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Turkey has an obsession with crypto — specifically Dogecoin: Study



The crypto market slump doesn’t mean interest in crypto is also down. A new study from the cryptocurrency education platform CryptoManiaks revealed that many countries are still scouring the internet, hungry for crypto-related information.

According to the study, the Netherlands and Turkey take the top two spots, with 8.2% and 5.5% of the population, respectively, searching for crypto-related terms. Turkey particularly accounted for 4.7 million searches, leading the searches with sheer numbers.

The study analyzed the combined number of searches for a select set of popular cryptocurrencies into a percentage of the population for each country in order to calculate the percentage of locals searching each month.

While it was in second for overall searches, Turkey came in first place for searches related to the memecoin Dogecoin (DOGE), with 812,000 monthly searches. This is nearly double that of Ethereum (ETH), the country’s third most searched crypto.

A spokesperson from CryptoManiaks commented on the DOGE curiosity, particularly over the last 12 month:

“Dogecoin’s popularity has surpassed that of Ethereum in a significant number of countries, with nearly 2 million more monthly searches worldwide for the coin.”

The cryptocurrency DOGE has remained a popular digital asset and crypto cultural phenomenon after it was adopted as the poster crypto for internet icon Elon Musk.

Some of the cryptocurrencies included in the search terms were Bitcoin (BTC), Solana (SOL), and Binance Coin (BNB), among others. 

Following the Netherlands and Turkey in the ranks were Germany, Canda and the Czech Republic.

Related: DeFi sparks new investments despite turbulent market: Finance Redefined

While the United States and the United Kingdom are major players in the global cryptocurrency industry, neither ranked in the top spots due to the number of searches equivalent to their population sizes. The U.S. ranked 15th with 1.9% of the population searching for these terms, while the U.K. takes the 12th spot with 2.6%.

Recent research from Cointelegraph also revealed that despite market conditions, major institutions still remain interested in the industry and continue to pour millions into crypto-related projects.



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Paraguayan Cryptocurrency Law Shelved After Presidential Veto – Regulation Bitcoin News

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The cryptocurrency and mining law that the Paraguayan Congress passed in June was finally shelved on Dec. 5. The document, which sought to bring order to crypto mining and exchange activities in Paraguay, was ultimately dropped after failing to obtain the votes needed to reject the presidential veto it received.

Paraguayan Crypto Law Dropped After Support Wanes

The Paraguayan cryptocurrency law that was introduced in Congress in 2021 was finally shelved after not receiving the support it needed in the Deputy Chamber. The project, which was vetoed in September by President Mario Abdo, failed to gather the votes needed in order to reject this veto.

The veto had previously been rejected by the Paraguayan senate, which aimed to approve and pass the law without presidential support. The veto had the support of the Commission for Industry, Commerce, Tourism, and Cooperatives; while the Economic and Financial Affairs, and the Fight against Drug Trafficking, Related and Serious Illicit Activities commissions rejected the motion.

Some deputies questioned the veto, stating that the cryptocurrency issue must be studied and regulated due to its importance. In this vein, deputy Sebastian Garcia criticized this outcome, stating that with this move, the cryptocurrency subject will remain in an “absolute informality.”

Reasons for Supporting the Veto Motion

One of the biggest reasons wielded by President Mario Abdo and other deputies to exert a complete veto on this bill has to do with the determinations it makes about the power delivered to cryptocurrency miners. Abdo stated that cryptocurrency mining was an activity featuring “high consumption of electrical energy, but little use of labor.”

Also, the law established limits for the fees that crypto miners pay for the power delivered to their operations. This would clash with the method of determining power tariffs by the National Power Administration (ANDE), an organization that also supported the veto measure after having found several cryptocurrency farms that were connected illegally to the power network.

Deputy Arnaldo Samaniego argued that rejecting the veto motion would put ANDE in a tight spot, facing potential losses of up to $30 million. Deputy Jose Rodriguez also supported this position, explaining that the organization could not operate with losses derived from this law.

This development puts the cryptocurrency regulation efforts in Paraguay back at square one, with legislators having to once more propose and discuss a hypothetical new cryptocurrency law.

What do you think about the final destiny of the cryptocurrency and mining law in Paraguay? Tell us in the comments section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as late to the game, entering the cryptosphere when the price rise happened during December 2017. Having a computer engineering background, living in Venezuela, and being impacted by the cryptocurrency boom at a social level, he offers a different point of view about crypto success and how it helps the unbanked and underserved.

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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