Exit scams (or rug pulls) are when developers flat out rob their crypto project and take off with all of the investor’s money. Sometimes projects will vanish with no prior notice, causing millions of dollars in losses.
Unfortunately, this is a common occurrence in the crypto world. Recently, a two-month-old project called BREE disappeared, along with their Telegram group, Twitter account, website, and Medium profile. With roughly $2.8 million lost, situations like this one definitely make people feel wary of investing in crypto.
So, how can you actually be safe in the world of crypto? Let’s look at how exit scams work and how you can make sure you don’t end up victim to one.
Some notable exit scams
- PlusToken – $2.9B – One of the biggest scams hailing from South Korea. These devs promised a questionably large return of investment (ROI) at 8-9%.
- PureBit – $30M – Another ICO from South Korea that disappeared after only two months.
- MapleChange – $5.7M – A Canadian cryptocurrency exchange claimed to have been hacked after an uncommon spike in trade activity.
- Modern Tech – $660M – Hailing from Vietnam, they managed to put out two ICOs (iFan and Pincoin) offering returns as large as 48% every month. They disappeared quickly when authorities started to get involved.
- Centra – $32M – A Miami-based cryptocurrency exchange that lied about being backed by Mastercard and Visa. They even had DJ Khaled and Floyd Mayweather endorse them.
- Loop – $4.5M – Promised consistent high returns with roughly 5 ICOs out. Then, they suddenly disappeared and left investors scratching their heads.
The telltale signs of an exit scam
The problem with exit scams is that they happen so abruptly. The developers suddenly take all of the investments and disappear with them, leaving investors with no profit and no cashback of capital. It’s pretty sad to see people pulling these types of scams, especially since the crypto community is striving to create a better world through decentralization.
Here are some red flags to look out for when researching a new ICO:
Most exit scams use a lot of promotion, putting out huge campaigns and advertisements and paying bloggers to build up hype. Not all ICOs with heavy promotions are scams, but you should still exercise caution if advertising seems a little over-the-top.
Guaranteed High Returns
To sell something, people make promises about a product’s effectiveness. Sometimes marketing tends to oversell, overshooting expectations to amaze people, and convince them to invest. The same goes for crypto. When a promise seems too impossible, and there’s no science or logic to back it up, it’s a no-go.
If it doesn’t look realistically achievable, it probably isn’t. Remember BitConnect? They promised a daily 1% return rate that would have amounted to $50 million in three years if you invested just $1000 at the start. With numbers this ludicrous, you can bet it’s a scam.
Before falling for the initial coin offering (ICO), research the team a bit. The internet makes it easy to spot whether someone is fake or genuine. Check their track record, analyze their social media engagement, check out their previous work, and reverse search some of the stuff they put out to see if it’s actually theirs. Most importantly, check if they’re working with trusted authorities in the industry. If the teams seem to come out of nowhere, that’s never a good sign. Don’t put your money in something fishy, anonymous, or unverified.
Please note that this isn’t as basic as doing a quick background search. Social media analytics can now easily be tampered with as long as someone is paying for it. This means that engagement and followers for a specific social media account can be bought to give brands and companies a sense of legitimacy. Instead of just doing a quick hover, get into a bit of a deep dive, and check on their backers, connections, followers, and previous projects. This is big money. After all, a little more time scrubbing the internet definitely won’t hurt.
When the white paper doesn’t make sense, that’s definitely a no-go. These documents are supposed to detail how the entire project was built and is projected to work. It should be transparent on design and development, evolution, and how the money will come in and out. If that’s not clear, if it’s too vague, or the numbers don’t add up, something fishy might be going on.
There’s no MVP
If the project is more of a concept than an actual working model, that’s definitely not a good sign. If this new-generation tech is really supposed to work, there should be an MVP for investors to interact with. This working model is easily overshadowed by heavy marketing and vague words, so please don’t fall for that. Always make sure you understand what’s going on and what’s supposed to happen next.
Keep it simple S – The K.I.S.S. Method.
Money doesn’t grow on trees! It takes time to acquire, and it can be easily lost (or stolen). If a project is too complicated, it’s your queue to wait for something else you might better understand. Also, note that if someone is asking for money in exchange for the promise of the initial investment back with a profit added, that’s definitely something you should run far away from.
There’s no foolproof hack when it comes to saving yourself from these kinds of scams. Your best bet in surviving will be some common sense, a certain amount of vigilance, and an overall skepticism towards things that are too good to be true. Stay safe!
If you want to make sure you avoid exit scams, you can invest in trusted and well-backed currencies. For some peace of mind, check out the ones we’ve laid out in our article below.
Common Crypto Scams
These are some of the industries biggest rug pulls!