Liquidity Removal (LP tokens not burned)
When a creator of a token creates a liquidity pool (LP), he injects x amount of tokens (the shitcoin) and x amount of SOL or USDC into it. For this example, lets say it was USDC and the name of the token is $RUG. He injected 1M $RUG and 1k $USDC. This creates the initial price of the token which equals to 0.001$ (1000 / 1,000,000) and this also means that the creator holds 100% of the liquidity. In return, he receives LP tokens. These tokens are automatically given to him by Raydium and he can swap them later to withdraw his liquidity. The tradooors (you) start buying the token.
User 1 swaps 100$ and gets approx. 90,909 $RUG. The liquidity pool is now: 1100 $USDC and 909,090 $RUG.
User 2 swaps 50$ and gets approx. 39,525 $RUG. The liquidity pool is now: 1150 $USDC and 869,565 $RUG.
User 3 swaps 70$ and gets approx. 49,893 $RUG. The liquidity pool is now: 1220 $USDC and 819,672 $RUG.
What you need to keep in mind here is that the creator still owns 100% of the liquidity in the pool. This means that he can simply press “Remove Liquidity” on raydium and withdraw 1220$ USDC and 819,672 $RUG by exchanging his LP tokens. He earned 220$ and the $RUG tokens that you bought are now worthless.
For more info about liquidity pools check out: https://docs.raydium.io/raydium/liquidity-providers/liquidity-pools
How to prevent this: Make sure that these LP tokes are burned.
When mint authority is enabled, this means that the creator of the token can mint as many tokens as he wants, even after the initial mint. This is obviously very dangerous for an investoor/tradoor. Here is an example:
Creator initially mints 1M $RUG and puts all of them into the liquidity pool along with 1k $USDC. As always, in return, raydium gives him LP tokens that he can later exchange to withdraw his liquidity. The creator then burns these LP tokens (gud news).
User 1 (you) swaps 100$ and gets approx. 90,909 $RUG. The liquidity pool is now: 1100 $USDC and 909,090 $RUG.
User 2 swaps 50$ and gets approx. 39,525 $RUG. The liquidity pool is now: 1150 $USDC and 869,565 $RUG.
User 3 swaps 70$ and gets approx. 49,893 $RUG. The liquidity pool is now: 1220 $USDC and 819,672 $RUG.
The creator whispers fuck it, time to dip…
He mints another 100M $RUG tokens, sells all of them and leaves the tg group. Your $RUG tokens are now worthless.
Holder distribution
Okay, okay, okay. You just found a token. LP tokens are burned and Mint Authority is disabled. You’re thinking this is the one. This is the one to make you a millionaire. BUT WAIT The dev of the token only put 20% of the entire supply into the liquidity pool and kept 80% for himself. BUT THERE’S MORE This dev thinks he’s clever and he sent 5% to each of his alts so that there wouldn’t be 80% in only one wallet.
How to prevent this: Check how how much token supply the dev holds in his wallet and you can see how much he sent to other wallets.
So these up there are the 3 most common ways for devs to rug. Even if all of these are cleared, that doesn’t mean the token will do well. Maybe the ticker isn’t good and doesn’t fit the narrative and the meta. Maybe the dev is afk most of the time and it just dies. Maybe the botters got in early and are now dumping on everyone so it dies again. Nothing guarantees you profits. You need to understand that you are still trading shitcoins. HOWEVER if you stay diligent and check the tokens you ape in, there’s a good chance you’ll earn some heavy profits. That’s why we made these tools, to help you make money. By degens, for degens.
