CRYPTOCURRENCY RUG PULLS.
When a significant amount of unsuspecting users or investors swap their tokens like Etheurem for the listed token, the cyber criminals who pretended to be creators then withdraw everything from the token's liquidity pool, dragging the price of the coin to zero.
Some times, the creators of the coin can even create a temporary hype in Telegram, Twitter, or other social media platforms and initially inject a substantial amount of liquidity into their pool to cultivate the confidence of the unsuspecting investors.
WHY RUG PULLS THRIVE ON EEXs.
Rug pulls thrive on Decentralized Exchanges because these types of
exchanges are always allowing its users to list tokens for free and without any audit being required, this is in contrast to what is applicable in centralized cryptocurrency exchanges.
Also, creating tokens in open source blockchain protocols like Ethereum is very easy and free. So malicious creators use these factors to carry out their malicious activities.
HOW TO AVOID RUG PULLS.
It should be noted that some decentralized exchanges such as Uniswap algorithmically determine the prices of tokens in a pool based on the available balances. In order to ensure that you don’t fall victim to a rug pull, always check the liquidity in a
pool. However, this is just the first step because you need to also check if there is a lock on the token’s pool. Most of the reputable projects lock pooled liquidity for a certain period, if this cannot be seen, then it might just be a time bomb waiting to explode.
Another way to identify a potential unruggable project is if the team that developed it renounces ownership of any of the tokens such as the tokens
they must have acquired during the presale of the coin.
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