How Can Investors Detect Potential Red Flags for a Crypto Rug Pull?
Red flags include the lack of a locked liquidity pool, which means developers can withdraw funds anytime. Another sign is anonymous development teams, making accountability impossible.
Extremely high annual percentage yields (APYs) or unrealistic promises can signal a scam. Furthermore, look for a low percentage of the token supply held in the liquidity pool relative to the team's wallets, suggesting a high potential for a massive sell-off.
Glossar
Rug Pull
Fraud Mechanism ⎊ A Rug Pull is a malicious maneuver where the developers of a cryptocurrency project suddenly abandon it after artificially inflating the price, typically by draining the liquidity pool of its underlying assets and disappearing with the funds.
High Annual Percentage Yields
Yield ⎊ High Annual Percentage Yields (HAPY) within cryptocurrency, options trading, and financial derivatives represent the annualized return expressed as a percentage, reflecting the accrued interest or gains over a year.
Investors
Capital ⎊ These participants deploy capital into the derivatives ecosystem, seeking alpha generation through leveraged or hedged strategies.