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By Sandeep Kasalkar
Rug pull frauds might not always be clear, but there are techniques to recognise these shady schemes and protect yourself.
Prefer well-established projects
Many new ventures lack a track record that would attest to their reliability or safety. Bored Ape Yacht Club is an NFT project, thus there are some risks involved with investing in it, but over time, the initiative has gained the community’s trust. Not all scams, but some do frequently copy aspects from other well-known initiatives, indicating that the project may lack originality or long-term value for investors.
Additionally, centralised exchanges like Binance or Coinbase (COIN) have rules in place and only list safe and legal assets, even though their listings do not necessarily reflect quality or the possibility of profit.
Research projects and their creators
While it may be tempting to jump into a hyped-up project right away, there’s a reason why “do your own research” is a common refrain in the crypto space. Before deciding whether to invest, it is critical to thoroughly investigate the project, its team, and the blockchain features.
While the founders of NFT or DeFi projects frequently remain anonymous, this approach may also protect them from being held accountable if the project’s launch goes wrong. In some cases, the founders may keep a pseudonymous crypto identity that they will use across projects and accounts for years. Check out their social media accounts and other available information if their identities are visible to see if they interact with other known people in the space and have legitimate followers.
Many genuine DeFi projects will also audit their smart contracts to ensure there are no bugs in their code, which is a positive sign for investors. However, this process can be costly and time-consuming, and audits do not guarantee that a project will not be tampered with later on.
Furthermore, it is beneficial to search through a project’s website, Discord channel, roadmap, white paper, and associated materials for anything that appears suspicious.
Be cautious of projects that promise high returns
Because DeFi scammers require liquidity to fund their scheme, any project that promises sky-high returns should be carefully considered. Staking rewards and yield farming are two common features in DeFi ecosystems that scammers may try to take advantage of or make false promises about.
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