Rug Pull

What Is a Rug Pull in Crypto?

  1. Glossary Term»
  2. Rug Pull»

A rug pull is a type of scam in the cryptocurrency space. It happens when developers suddenly withdraw all liquidity or funds from a project, leaving investors with worthless tokens.

This tactic is common in decentralized finance (DeFi) and often affects new or unknown tokens.

How a Rug Pull Works

Creating Hype

Scammers launch a new token and promote it heavily. They may use social media, influencers, and flashy websites to attract attention. They often promise high returns and quick profits.

Liquidity Trap

The team adds liquidity to a decentralized exchange (DEX) and encourages users to buy the token. As investors add money, the token appears to gain value.

But behind the scenes, the developers control most of the funds or tokens.

The Exit

Once enough money flows in, the team removes the liquidity or sells all its tokens. This action crashes the token price, leaving investors with assets that have little or no value.

The scammers disappear—often anonymously.

Types of Rug Pulls

Liquidity Removal

This is the most common method. Developers remove liquidity from the DEX, making it impossible to trade the token.

Token Dump

Sometimes, developers mint a large number of tokens and dump them on the market, flooding the supply and crashing the price.

Locked Features or Backdoors

Some projects include hidden functions in smart contracts. These allow the team to manipulate balances or block users from selling tokens.

Signs of a Potential Rug Pull

  • No audited code or third-party review

  • Anonymous or unverified team

  • Poorly written or copied whitepaper

  • Huge returns with no real use case

  • Token contracts that allow unlimited minting

  • No liquidity lock or vesting schedule

If something seems too good to be true, it probably is.

How to Avoid Rug Pulls

Do Your Own Research (DYOR)

Before investing, study the project’s team, roadmap, and tokenomics. Check for smart contract audits and authentic community engagement.

Use Trusted Platforms

Stick to known DEXs and verified tokens. Be cautious with brand-new tokens, especially those aggressively promoted on social media.

Check Liquidity Locks

Some platforms allow developers to lock liquidity for a set period, reducing the risk of a sudden exit. Tools like Token Sniffer and RugDoc can help verify this.

Famous Rug Pull Examples

  • Squid Game Token (SQUID): A token inspired by the Netflix show that surged in price, then dropped to near zero as the developers vanished.

  • Meerkat Finance: A DeFi project reportedly lost $31 million within 24 hours of launch.

These scams highlight the importance of caution in the crypto space.

Final Thoughts on Rug Pulls

A rug pull is a serious threat in crypto, especially in fast-moving DeFi markets. While innovation brings new opportunities, it also attracts bad actors. Knowing how these scams work—and how to spot red flags—can help protect your investments.

Stay alert, research deeply, and never invest more than you can afford to lose.