A rug pull is a type of exit scam in the cryptocurrency industry where developers abandon a project and run away with investors’ funds.
This fraudulent practice is common in decentralized finance (DeFi), particularly with meme coins, initial coin offerings (ICOs), and non-fungible token (NFT) projects.
Rug pulls are a significant concern in the largely unregulated crypto market, leading to substantial financial losses for investors.
What is a rug pull?
A rug pull is a deceptive scam in the cryptocurrency space where developers create a new token, promote it aggressively, and then suddenly abandon the project, taking investors’ funds with them.
Rug pulls often involve the sudden removal of liquidity from a trading pool or the sale of pre-mined tokens, causing the asset’s value to crash.
These scams often lure victims with promises of unrealistic returns or revolutionary projects, only to vanish once enough money has been raised.
How Rug Pulls Work
- Token Creation – Scammers create a new cryptocurrency token, often on blockchains like Ethereum or Binance Smart Chain, where launching a token is relatively simple.
- Marketing Hype – The project is heavily promoted on social media (Twitter, Discord, Telegram) to attract investors.
- Investor Funds Collected – Traders buy the token, increasing its value and liquidity.
- The Scam Executes – The developers suddenly withdraw all funds, shut down communication channels, and disappear—leaving investors with worthless tokens.
Common Platforms for Rug Pulls
Rug pulls frequently occur on decentralized exchanges (DEXs) like Uniswap and PancakeSwap because:
- Tokens can be launched without audits or regulatory oversight.
- Many investors lack the technical skills to verify smart contracts.
- Scammers exploit anonymity to avoid accountability.
Impact of Rug Pulls
- Billions of dollars have been lost to rug pulls, with some scams netting millions in minutes.
- They erode trust in decentralized finance (DeFi) and harm legitimate crypto projects.
- New investors are particularly vulnerable due to lack of experience.
How to Avoid Rug Pulls
- Check for Audits – Avoid tokens without third-party smart contract audits.
- Research the Team – Anonymous teams are a major red flag.
- Verify Locked Liquidity – Legitimate projects often lock liquidity for a set period.
- Be Skeptical of Hype – If returns sound too good to be true, they probably are.
Types of Rug Pulls
Rug pulls can be executed in several ways, including:
- Liquidity Removal – Developers create a token, pair it with a stablecoin or Ethereum in a liquidity pool (e.g., on Uniswap or PancakeSwap), and later withdraw all the pooled funds, making the token worthless.
- Token Minting Exploits – Malicious developers retain control over the token’s smart contract, allowing them to mint unlimited new tokens and dump them on the market.
- Pump-and-Dump Schemes – Promoters artificially inflate a token’s price through hype before selling their holdings at a peak, causing a sharp decline.
- Fake Projects – Teams create elaborate websites and social media presences, only to disappear after raising funds through presales or private investments.
Rug ug pulls can take other forms:
- Dumping – Developers sell their pre-mined tokens, crashing the price.
- Limiting Sell Orders – The smart contract prevents investors from selling while insiders cash out.
- Liquidity Pool Stealing – Founders withdraw all liquidity, making the token untradeable.
- Backdoor Exploits – Malicious code allows scammers to mint unlimited tokens or lock funds.
Notable Examples
- Squid Game Token (October 2021) – A token inspired by the Netflix series Squid Game surged before developers pulled approximately $3.3 million in liquidity, crashing its price to zero.
- Thodex (April 2021) – A Turkish exchange CEO fled with an estimated $2 billion in user funds.
- AnubisDAO (October 2021) – A DeFi project raised around $60 million in a liquidity bootstrapping event before vanishing within hours.