How to avoid rug pulls in the NFT space?
What is a rug pull?
A rug pull occurs when the team of an NFT project abandons the project and walks away with the investors’ money.
There is no magic formula to avoid them with a 100% success rate, but you can minimize the risks of falling into one of these scams by learning how to detect red flags.
If you want to learn how to analyze whether a project is worth investing in or if it has a high risk of turning into a rug pull, continue reading.
The NFTs space is booming and has become very attractive for both investors and scammers in a short time. Every investor, especially beginners, must learn to detect and protect themselves from these scams.
This article describes a series of alarm indicators, also known as red flags, that will help us detect when a project is at risk of being a scam.
"red flags or alarm indicators"
What important points should I analyze?
The first point we must analyze is the team behind the project. A totally anonymous project in which the identity of none of its members is known should alarm us, while a known and professional team, with other successful projects behind them, is a sign that the project is not a scam. A search through their social media (Discord and Twitter mainly) can give us a lot of information. We must look at whether the project has a solid community behind it or, on the other hand, its social networks are full of bots.
Another important point to analyze is the project’s roadmap. The roadmap explains the objectives, strategies and steps the project will follow to build value. Here an overly ambitious and unrealistic roadmap should alert us. Non-legitimate projects tend to come up with too-good-to-be-true roadmaps to get noticed.
The third most important point to analyze is the liquidity that a project has and the volume of trading it presents. A high volume indicates that there are many users trading these NFTs, which is a good sign. On the other hand, a low volume and low liquidity should alert us of a possible rug pull.
In conclusion, before investing in NFTs we must know that they are very high-risk assets, so it is important we learn to identify certain warning signs that will help us detect scams and thus protect our money.
