How to Avoid Rugpulls in Memecoin Trading

 Introduction 

Rugpull is a common problem experienced by traders, especially meme coin traders, resulting in costly mistakes. Rug Pulls happen to coins of any liquidity and market cap. Developers may create a Meme coin and Rug Pull it in order to enrich themselves at the expense of community holders. Methods that can help you avoid Rug Pulls are : Using a scan tool, buying and selling small as a test, looking at the holding of whales and developers, mintabilty review, checking for reviews online and checking whether the liquidity is locked or not. All of these, have been unpacked below.

1. Scanning Meme Tokens.

Checking Meme tokens using a reputable tool , is one of the best way to avoid costly mistakes and protect yourself. Scanning is using a tool to examine the contract address of a meme coin, it is like shaking a box of matches to find out if there are any  match sticks inside. Checking a meme coin works in the same way. with the help of modern tools , it is possible to delve into a meme coin and establish whether it is genuine or not. It is a very useful method because it provides timely information that can be used to increase your chances of winning in the meme coin game.

There are many meme coin scanners that you can use to scan a meme coin in real time, your choice will largely depend on the meme coin that you are dealing with, particularly the network that it is on , major crypto networks are Etherium, Solana, Base(of Coinbase) , Polygon, Tron and Binance network. for example, when trading a solana meme coin, you will use a scan tool that can specifically scan a solana meme coin, you have to use the right scan tool to avoid failure in the scanning process. 

 Now we turn to the tools that you can use to scan Meme coin tokens in real time , to get fast results that you can use on your trading immediately , great scan tools  that you can use to check a meme coin are: BSC Scan for Binance smart chain tokens https://bscscan.com/ , Rugcheck.xyz for Solana meme coins, Token sniffer and Rug Doctor. It is essential to use the right rug checker to avoid generating error messages. For example, if you are trading a Solana meme coin, you have to use a rug checker that can check  a solana meme coin.

We will now look at some of the red flags that a scan tool can point out, when you see any of these red flags generated by a scanner , please avoid the coin,  because it has high chances of being a rug pull. The red flags include unlocked liquidity, low amount of liquidity providers, Owners holding too much of the total supply, ideally , any number beyond 30%  is a cause for alarm. Additionally, if a meme coin has mutable metadata, it would be best for you to avoid it altogether. A sell tax of 100 percent is also a huge red flag, you want to be able to sell your token and make profit , a sell tax of 100 percent would make it impossible for you to sell a meme coin ( honeypot trap) . It is important to carefully look at the metrics generated by a rug checker to guide your decision.

Green flags on a meme coin scanner include: Locked liquidity (This enables you to sell the token anytime and exit a position, carefully look at the amount locked, make sure it is not too small to be insignificant. The second green flag is a small portion of the total supply (less than 10 percent in the hands of the owners of the token) , many holders , Great social media presence, inability to mint the tokens and absence of whale wallets that can sell and destabilize the prices. If the meme coin ticks all these green boxes, then it is a safe token to invest in.

2.Buy Small Sell Small method

This is a strategy that can protect you from  buy but cannot sell trap, this trap is known as honeypot, usually the developers make it impossible for investors to sell a token , by specifying it in the contract, one method of doing this is by creating a 100 percent tax on any sell of the token, this makes it impossible for holders and investors of a token to sell it, they have money but they cannot get it, one way of identifying this trap is a chart that is all green, that usually indicates this trap.

Buying small and selling small , tests for this kind of trap , losing 5 dollars testing is better than losing 5000 dollars in a rug pull, the test amounts should be as low as possible, the bare minimum is encouraged, given that meme coins are financial vehicles of faith, it is very crucial that you take your time to buy small and sell small as a test, if you are able to buy small amounts and sell them, then that is a green light, but if you cannot sell, then it is a rug, kindly avoid that trade, remember , it takes you effort to make money , do not waste it  buying what you cannot sell.      

3. Insider Holding 

The amount of the total token supply held by the owners matters a lot, for example if the developers own 90 percent of the total token supply, they have massive power over the price , if they sell all at once, the price will drop suddenly,  leaving investors with worthless bags, Moreover , owning most of the supply, puts them at unfair advantage over the rest, they get to enjoy a bull run as others pick pennies ,simply because they own so much of the supply. Therefore , it is very important to examine the holding of insiders before deciding to invest in a token.

A good project's ownership of majority of the supply is not too concentrated on a few hands , in a project worth investing, the owners should own less than 10 percent of the total supply, this ensures that they do not sell suddenly and dump the cost on investors. When owners own less than 10 percent of the total token supply, even if they decide to sell, investors will not suffer too much due to price movements. Ownership of the total supply is a good metric to keep your eyes on.

4.  Whale wallets

A whale wallet is a wallet that owns a very large amount of the circulating supply of a meme token, whale wallet infested projects , are extremely risky because the whale can decide to sell all their holdings at once significantly reducing the value of a token, this is especially so for new tokens. When major whales pull out suddenly, small traders are left with rugs or small amounts that can never be compared to their investment in a token, using a check tool , it is so important to find out whether any whale wallets are involved and the percentage of the asset , that they have, ideally, in a good project, whale wallets should not own more than 10 percent of the circulating supply. Thus, to avoid rugs , always check for whale wallets and their holdings to guide your investment decision.

5. Check whether the Meme Token in mintable

Mintable simply means that the developer can create more tokens beyond it's initial supply, markets operate by the principle of demand and supply, if the supply is too much ,  the price goes down and vice versa, the same case is true in crypto, when a developer creates more and more  of a token, it's  value becomes less and less. it works in a similar way to a country, when the Fed prints more and more dollars , their value becomes less and less , as their purchasing power goes down.

Using a Rug check tool, you can easily find out if a token is mintable or not, if a project is mintable please run away from it, mintability is programmed into a token's smart contract, this means that it can be easily identified using a rug check tool. Minting is a powerful tool that brutal developers can use to make sure that they Rug the entire collection, if a developer doubles the supply, your investment will be slashed in half instantly, this means losing money, you have to take mintability very seriously to avoid losing your hard earned money to scammers.

6. Check Reviews Online.

One of the best pieces of advice that i can give you is do not trade alone, the world has so many people who are willing to help out, if you are thinking about investing on a project that has been around for sometime, then seek advice from people who are on that path, or people who have already moved through that path, advice is something that is given free of charge, this one step may save you from rogue developers.

Join Crypto communities on Telegram, Facebook, Discord , Reddit and Twitter, look at reviews of other people about a project on these sites. Additionally, you can always access reviews on popular review sites across the world, if you find out that someone lost money on a project , please do not take it lightly, avoid the project right a way, you need to look at least for 3 different reviews from different sites, we have to note that some people may use malicious falsehood to destroy the credibility of a good project, especially the direct competitors of that project, that's why it is essential to look at 3 or more reviews from independent sources before making an investment decision.

7.Technical Analysis

Technical analysis is all about looking at the charts , you are looking for  the signs of a rug from the behavior you see on the charts,we will note some of the behaviour from charts that you should look for  , first red flag  is a chart  that is all green, know immediately that that is a honeypot trap , avoid it immediately, in that token contract , you will be able to buy but not be able to sell it.  You can freely get charts from Coinbase, Coinmarketcap and Coin gecko, observe closely to avoid a rug.

A very important thing to look at is the behaviour of  charts , is it organic or not, if a chart shows a predictable behaviour and too much regularity , then probably it is a rug , areas to look at in this regard include times of bull runs and bear markets , too much repetition simply means that the project is tightly controlled by developers that use the bull run to attract naive traders into the trap and exploit them totally, be on the lookout.

8. Check whether the liquidity is locked.

 We will start by understanding liquidity, simply put liquidity is the ability of an asset to be bought or sold, assets with high liquidity such as Bitcoin can be bought and sold easily without affecting the price significantly, while assets with low liquidity cannot support big amounts of buys and sells, their price is affected greatly by any large transaction. Thus, it is safer to invest in an asset with high liquidity to avoid losses.

The whole concept of locking liquidity revolves around protecting the ability to buy and sell an asset so that investors can buy and sell an asset easily. Liquidity makes the market possible by making sure that there is enough of an asset to support buying and selling without significantly affecting the price, liquidity providers are the ones that make all this possible by keeping their resources in the pool. A project with locked liquidity is safer because , liquidity providers cannot pull out suddenly leaving investors with empty bags, so it is safer than the one with unlocked liquidity.

Conclusion

Meme coins are financial vehicles of faith, especially to a world with dwindling jobs and hope, they offer hope to many, but it is this same hope that is used by rogue individuals to cause massive financial losses to the ignorant traders, do not be one of them. Use this guide to protect yourself from predators that may disguise themselves in Meme coins. Feel free to share with me your opinions on this post and what you would like us to cover too.