How to Identify Rugs

June 5th, 2024

Rugs refer to when the deployer of a token exploits its holders through malicious means. They fall into 2 categories: pulling liquidity & abusing deployer’s control over various parameters around the token

Liquidity Pool

Pulling liquidity

This is the most common kind of rug. After the token begins trading and accumulates some buys, the deployer removes the liquidity pool and takes away all the money people have put into the pool.

Example:

Adding liquidity but not locking: https://etherscan.io/tx/0x7e65307e32ac4bb7effdc6bf541f6dd7958f035098137db7c777dd2b14d47798

Pulling liquidity after trading for a few minutes: https://etherscan.io/tx/0x7a874a3fb1af0d82caba079ae5cd5f753feb6b8e888dc88559ec42ce6da70cb8

Custom locker

Instead of burning the LP or using industry standard LP lockers, some deployers use custom lockers to give themselves more flexibility, or so they say. A lot of times, custom lockers have backdoors that non-technical people can’t identify. Rule of thumb is to stay away from these tokens.

Deployer Control

Token Mint

Minting infinite amount of tokens

Example: $Normie Exploit https://basescan.org/tx/0xa618933a0e0ffd0b9f4f0835cc94e523d0941032821692c01aa96cd6f80fc3fd

Blacklist

Blocking buyers from transferring or selling their tokens.

Max transaction

Setting a limit on how much a user can sell per transaction. This is used to appear as if there’s no blacklist, but they’re essentially the same thing.

Trading Tax

Tax refers to how much of your token is taken away in each buy and sell. While you technically can still sell, high tax essentially works like a blacklist as it takes away most of your investment

Now that we know what types of rugs you should anticipate while grinding in the trenches, let’s talk about how we can identify them. Fortunately, 99.999% of the time rugs are very low effort, so it’s easy to spot them if you pay attention. Here are a few things you should pay attention to

Qualitative Evidence

Meme quality

A quality meme offers good upside for early buyers, and even greater upside for its deployer. A good deployer delays the gratification of quick money, and in return, they’re rewarded handsomely for gathering a big community.

On the flip side, ruggers only see the few dozens of ETH sitting in the liquidity pool. They are generally terrible at making memes. These memes either don’t make sense or are very low-quality derivatives of existing memes (doge, WIF, cat derivatives).

If you stick to a stringent process of vetting the quality of a meme, you should be able to avoid 99% of the scams in this category.

If you’re unsure about how to identify the quality of a meme, check out our previous article here.

Chart pattern

Due to the low quality of their memes and the obvious honeypots, scammers rarely attract organic volume early on. To lure in less experienced buyers, wealthy scammers constantly buy their own coins to push the volume and the price up. Because they’re the only buyer, they have essentially cornered all of the supply. As such, a rug’s chart is usually up only, which is not possible for organic coins as you have hundreds of traders battling each other.

Stay away from up-only charts.

Telegram setup

Getting into the group chat doesn’t require verification.
Moderator has a tiny Twitter account and is taking advantage of his power as a mod to direct people to raid his post.
Famous CT shitcoiners in the group chat but you can’t see their handle (it means these are scam accounts imitating the influencers).

Twitter post pattern

Constant mentions of the coin’s market cap (while ignoring his job of making good memes. It shows that his heart isn’t in the right place).
Reposting callers.

Callers receive free tokens in exchange for sharing the ticker on their Twitter account or telegram groups. Since they have no cost basis, they’re much more likely to dump all of their tokens. Do not touch anything that pays for callers.