What Is a Rug Pull?
A rug pull is a crypto scam in which a project's developers take investors' money and abruptly abandon the project. It usually happens by draining the token's liquidity pool or dumping the team's token supply.
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A rug pull is a crypto scam in which a project’s developers take investors’ money and abruptly abandon the project. The name comes from pulling the rug out from under someone: buyers are suddenly left holding tokens they cannot sell or that are worth almost nothing. Rug pulls are most common among newly launched tokens on decentralized exchanges, where anyone can create and list a token in minutes.
How does a rug pull work?
The usual script goes like this. The team creates a token, pairs it with ETH or a stablecoin in a DEX liquidity pool and hypes it hard on social media. As buyers pile in, the pool fills with ETH. Then the team either withdraws the liquidity or dumps its large token holdings into the pool.
Once the liquidity is gone, the pool holds almost no ETH. The number of tokens in your wallet doesn’t change, but what you can get for them collapses, and the price effectively goes to zero.
Types of rug pulls
- Liquidity pull: Developers withdraw the pool’s liquidity. The fastest and best-known type.
- Unlimited minting: A hidden permission in the contract lets the team mint new tokens and sell them into the pool.
- Sell restrictions: The code blocks ordinary holders from selling, a setup also known as a honeypot.
- Soft rug: The team gradually sells its tokens and quietly walks away. No malicious code is involved, but the outcome is similar.
The first three involve deliberate design and are often called “hard” rug pulls. A well-known example is the Squid Game (SQUID) token of 2021, which rode the show’s popularity: its price soared, buyers found they couldn’t sell, and the developers pulled the liquidity and disappeared.
How to spot a potential rug pull
No check is foolproof, but these red flags raise the risk considerably:
- Liquidity isn’t locked, or the lock is very short.
- Most of the supply sits in a handful of wallets.
- The contract lets the owner mint tokens, change sell fees or blacklist addresses.
- The team is anonymous, the code is unverified and the pitch is all about price.
- Promoters promise guaranteed returns like “100x in a week”.
Our guides to reading tokenomics and on-chain data are good starting points for checking supply and permissions.
Rug pull vs. failed project
Not every collapse is a rug pull. Projects fail because they can’t ship a product, run out of money or get caught in a market downturn. What defines a rug pull is the team deliberately taking investor funds and walking away. For a related form of manipulation, see our entry on pump and dumps.
Frequently asked questions
Can you get money back after a rug pull?
Usually not. Funds are typically scattered across many addresses within minutes. You can report the scam to law enforcement, but recoveries are rare.
Does “liquidity locked” mean a token is safe?
It lowers the risk but doesn’t eliminate it. The team can still open other pools or use a mint function in the contract.