Rugpull losses can spell doom for Crypto market credibility
I am sure many of us who have been active in the business of investing or trading cryptocurrencies has one time or the other been rug pulled by a sham shitcoin project or hacked by porous blockchain security infrastructure or lost money due to very poor, lacklustre and sometimes ill intentioned defi projects founded by ill intentioned or inexperienced blockchain developers and silicon valley business men. What are the effects of these losses on the global crypto market, its adoption and the possible way forward?
In 2021, the crypto space lost over $2.8 billion to defi “rug pulls,” a colloquial term for a type of crypto scam, according to a report by Chainalysis. Over 60% of victims of rugpull scams were US citizens, while Africa and Europe share 40% loss. At least 36 per cent of the victims lost over $2.8 billion to ‘rug pull’ cases. A rug pull is a malicious manoeuvre in the cryptocurrency industry where crypto developers abandon a project and run away with investors’ funds. In total, crypto scams rose by 81 percent this year from 2020 was led by rug pulls according to coindesk.
The rug pull for the Squid game is the most recent and one of the largest rug pulls in crypto history. The Squid token was a play-to-earn token based on the Netflix smash TV show Squid Game. The token’s phenomenal increase eventually reached $2861 in price value before it disappeared. The Squid token had been disassembled, and its creators had become unreachable. More than 43,000 investors had invested their money into the token by this point.
The current value of the coin is $0.003028. Simultaneously, investors have come to accept that they would be unable to sell their tokens. No one could sell the tokens from Uniswap’s decentralized exchange due to an anti-dumping feature set by the project’s developers. The investors have no possibility of ever getting their money back.
These aggregate pool of losses from rug-pulls has so far been leaving a consistently bad stench of PR blood to the entire crypto industry.
The Effects of continuous financial losses to rug pulls and porous infrastructure hacks
- Loss of more Investors and early adopters: The more financial investment made into cryptocurrency by new and existing users the more it contributes as the major lifeblood of the entire crypto space. The more users take their hard earned fiat money in investing in whatever crypto project or its utility that is out there, the better for the market. It has been a proven phenomenon that more fiat investment massively impacts the space and further grows the market cap of most crypto currency projects in recent times, with Bitcoin sitting pretty with a market cap of about $600B and Ethereum not so far behind with a market cap of $200B. The emergence of more and more negative news from people getting rugged of thousands and thousands of hard earned $$ from these shit projects only leaves negative PR impact on the entire crypto space, which will generally lead to more investors pulling out from what is generally being known as a pump and dump industry.
- Crypto Adoption will be halted: It is true we are very much early in the realm of what is possible with blockchain and cryptographic technology however one of the major goals for cryptocurrency as embodied by Satoshi Nakamoto’s Bitcoin project is for a cryptographic project be permision-less, scalable, and high secured enough to be the world’s first digital currency that can be used as a means of exchange and store of value, however with the bad PR and FUD mechanism being promoted by Rugged projects does pose a huge road block for credible projects like bitcoin to reach its goal of massive adoption. Many investors and crypto enthusiasts are paying attention to the negative news emanating from the space or becoming victims of rug-pulled projects so much so its killing the interests of so many to even bother about filtering for credible projects like bitcoin. The negative impact the FUD against credible cryptocurrency projects can not be trivialised hence the need to move into action against these fraudulent defi projects and the social media influencers who shill them.
What can be done as an Industry
There is so much the crypto space can take as an open market democracy and advocate however certain drastic measures need to be put in place as regards regulation against shit tokens so that the actions of a few won’t cast a shadow on an emerging industry struggling to maximize its adoption goals. Here are things can be done as an industry against bad elements:
- Nuke all 5k plus defi and shitcoin projects. It sounds funny and a tad-bit extreme but it’s a functional way. It is unreasonable to bit around the bush at this time. These tokens on the long term can not survive the hurdles of the market, and the elephant in the room is how most of these token have zero viable utility or use case. Most of these projects are pump and dump schemes created for the benefit of liquidity theft by ill intention developers or businessmen looking for short term cash out.
- There should be regulation against the creation of tokens. Serious projects should be allowed on the basis of creating their own blockchain from the get go.
- Instead of more shitcoin projects, business men or developers who are interested in the space should either build their own blockchain from the get go with great features and utility OR collaborate in improving existing blockchain projects. It seems like the practical way to go cause the noise of new zero direction projects is only snuffing the life out of the crypto space and creating unnecessary losses and harms to innocent investors.
What can be done as a User
- Check liquidity: One way to assess a token’s legitimacy is to check its liquidity. Legitimate projects usually have millions in liquidity. These projects lock up a significant amount of tokens for a long time — and again, they cannot be withdrawn from the liquidity pool during that time frame.
- Examine Github, Whitepapers, and Social Media Platforms : Github is the central repository for DeFi projects’ code, which generally houses their development efforts. It’s important to monitor these, as well as a project’s social media platforms, such as Telegram and Twitter. If the project does not appear to be under active development and is a fork of another project, this might be a red flag. If the social media is not active or has suspicious and illicit content this can be a red flag.
- Verify the team’s credibility:
The disadvantage of such an uncontrolled market is that anybody may list an asset since there is no central authority over it. Rug pulls are in handy when there’s no one else to detect whether a project is trying to defraud folks.
As with any new technology, unscrupulous crypto players will do their hardest to defraud others with less understanding and expertise. Prices for many new ventures might be exaggerated in the near term, and it can be difficult to distinguish hype from reality. It is up to the industry’s leaders to establish an environment that is conducive to crypto adopters and in the same vein draw a step closer to massive adoption that crypto market truly desires.