What is a Rug Pull?

A rug pull is a type of crypto scam where project creators suddenly abandon the project after extracting investor funds—like “pulling the rug” out from under investors. Common in DeFi and new token launches.

Types of Rug Pulls

Liquidity Removal

Most common type:

  1. Create token with liquidity pool
  2. Hype the token, attract buyers
  3. Price increases
  4. Creator removes all liquidity
  5. Token becomes unsellable
  6. Investors stuck with worthless tokens

Token Dump

  1. Team controls large token supply
  2. Create buying pressure
  3. Dump all tokens at peak
  4. Price crashes to near zero

Backdoor Exploit

  1. Smart contract has hidden function
  2. Allows creator to drain funds
  3. Investors think contract is safe
  4. Suddenly funds stolen

Warning Signs

Red Flags

Anonymous Team

  • No verifiable identities
  • Fake social profiles
  • Stock photos for team

Unrealistic Promises

  • “100x guaranteed”
  • “Risk-free investment”
  • Extremely high APY

Liquidity Issues

  • Liquidity not locked
  • No lock period shown
  • Single wallet controls liquidity

Contract Red Flags

  • Not verified on explorer
  • No audit
  • Mint function exists
  • Hidden admin functions

Social Media Red Flags

  • Aggressive shilling
  • Bot comments
  • Paid promotions
  • Deleting criticism

Famous Rug Pulls

Squid Game Token (2021)

  • Named after Netflix show
  • Pumped 45,000% in days
  • Couldn’t sell (honeypot)
  • Creators drained $3.4M

AnubisDAO (2021)

  • Raised $60M in hours
  • Liquidity stolen
  • Single wallet drained pool

Meerkat Finance (2021)

  • DeFi protocol
  • $31M stolen day after launch
  • “Hacker” was likely team

How to Protect Yourself

Before Buying

Check the Team

  • Verifiable identities
  • Real LinkedIn profiles
  • Track record
  • Public appearances

Audit the Contract

  • Verified on Etherscan
  • Professional audit report
  • No suspicious functions
  • Renounced ownership

Check Liquidity

  • Liquidity locked
  • Lock duration (months/years)
  • Multiple liquidity sources

Research

  • How long has project existed?
  • Real community or bots?
  • Telegram/Discord quality
  • GitHub activity

Tools to Use

  • TokenSniffer
  • RugDoc
  • DexTools
  • GoPlusLabs

Honeypot vs Rug Pull

Honeypot

  • You can buy but can’t sell
  • Contract blocks selling
  • Different mechanism
  • Often part of rug pulls

Rug Pull

  • Broader term
  • Various extraction methods
  • Always leaves investors holding worthless tokens

After a Rug Pull

Unfortunately

  • Funds usually gone
  • Blockchain is immutable
  • Hard to recover

What You Can Do

  • Report to relevant platforms
  • Warn others
  • Document for taxes (capital loss)
  • Learn from the experience

Safe Trading Practices

Stick to Established Projects

  • Major tokens on Binance, Coinbase
  • Long track record
  • Verified teams
  • Real products

If Exploring New Tokens

  • Only risk what you can lose
  • Small position sizes
  • Exit with profits
  • Don’t get attached

General Rules

  • If it seems too good to be true, it is
  • Anonymous teams are red flags
  • DYOR always
  • Never invest based on hype alone

Criminal Activity

  • Rug pulls are fraud
  • But crypto often unregulated
  • Cross-border issues
  • Hard to prosecute

Some Prosecutions

  • DOJ has pursued some cases
  • Increasing enforcement
  • But recovery rare

Prevention Checklist

Before investing in new project:

  • Team is public and verifiable
  • Contract is audited
  • Liquidity is locked
  • No mint function abuse possible
  • Community seems organic
  • Project has working product
  • Tokenomics make sense
  • You can afford to lose it all