What is a rug pull?
A rug pull is a crypto scam in which the people behind a project take investors' money and disappear. The name comes from the image of pulling a rug out from under someone's feet. The rug pull meaning is simple: buyers are left holding a token that nobody wants or can sell, while the creators keep the funds.
Rug pulls are most common with new tokens, meme coins, NFT mints and small DeFi projects. Anyone can create a token in minutes and list it for trading with no checks. That low barrier is why rug pulls sit among the everyday types of Crypto Scam.
Not every failed token is a rug pull. Many projects fail because of poor planning or weak demand. A rug pull needs intent: the creators plan from the start, or decide later, to take value from buyers. From the outside, intent is hard to prove, which is why the warning signs below matter.
A rug pull is defined by deception and intent, not by a falling price. If you cannot sell, or the creators vanish with the money, treat it as a possible scam.
How a rug pull works
Most rug pulls follow the same pattern. The creators launch a token, build hype on social media, and attract buyers. When enough money has come in, they take it out in one of a few ways.
Liquidity removal
Tokens on decentralised exchanges trade against a Liquidity Pool, usually paired with a major coin or a stablecoin. The creators often hold the tokens that represent their share of that pool. If they withdraw it, the valuable side of the pool leaves with them and the price collapses to near zero.
Token dumping
Creators and insiders often keep a large share of the supply in a few wallets. When the price rises, they sell into the buyers' demand until the price falls. Some insiders also use Sniper Bot (Crypto Sniping) tools to buy at the moment of launch, before ordinary buyers can.
Hidden mint functions
A token contract can include a function that lets its owner create new tokens at will. The owner mints a huge amount, sells it into the pool and takes out the paired coins. The code is public, but few buyers read it.
Types of rug pulls
Analysts often split rug pulls into two groups. A hard rug pull is built into the code, such as draining a pool or blocking sales. A soft rug pull is a gradual sell-off or abandonment by the team, with no obvious trick in the contract.
| Type | How it works | Typical warning sign |
|---|---|---|
| Liquidity pull (hard) | Creators withdraw the pool's funds in one move | Liquidity is unlocked and held by one wallet |
| Sell restriction (hard) | Code lets buyers buy but blocks or taxes selling | Sells fail or carry extreme fees |
| Hidden mint (hard) | Owner creates new tokens and sells them | Contract owner can change supply |
| Gradual dump (soft) | Team sells its large holdings over days or weeks | A few wallets hold most supply |
| Abandonment (soft) | Team stops work, deletes channels and goes silent | Updates stop, social accounts vanish |
Sell restrictions are close to a Honeypot, a contract that traps buyers by letting them buy but not sell. The line between types is not always clear, and one scheme can use several methods. Many of the tokens involved are what people call a Shitcoin, although that label alone does not prove a scam.
Warning signs and red flags
No single sign proves a rug pull, but several together should make you stop. These are the most common ones.
- Anonymous team: No named people, no verifiable history, or fake profile photos.
- Unlocked liquidity: The pool can be withdrawn at any time by the creator.
- Concentrated supply: A few wallets hold a large share of the tokens.
- Promised returns: Claims of guaranteed or risk-free profit are a classic scam signal.
- Pressure to hurry: Countdowns, "last chance" messages and paid influencer posts.
- Copied or sloppy material: A whitepaper with errors, a very new website, or a copied roadmap.
- Unusual contract powers: Owner can mint, pause trading, blacklist wallets or change fees.
- Trading problems: Sells that fail, or an unusually high sell tax.
Hype is also a warning sign in itself. A token that rises thousands of percent in days, with most buyers arriving through social media, is more likely to be a target for insiders to sell into.
Notable cases (verify)
Rug pulls have been documented for years. The two examples below are shown only as publicly reported cases and as illustrations of the patterns above. They are public allegations and press reports, not court findings.
- Squid Game token, November 2021: The token, inspired by a TV series, reportedly rose by more than 35,000% in three days. On 1 November 2021 it fell by nearly 99.99% within 24 hours, according to CoinMarketCap data cited by CoinDesk. The developers said on Telegram that they were leaving the project, and press reports at the time put the alleged proceeds at about US$2.1 million. Early warning signs included a whitepaper with spelling errors and a website registered less than a month earlier.
- Frosties NFTs, March 2022: The US Attorney's Office for the Southern District of New York announced charges against two men over an NFT project that raised about US$1.1 million. The complaint alleges that the website was shut down within hours of the sell-out and the funds were moved through several transactions. The charges are allegations until proven in court.
Cases move through courts slowly, and outcomes can differ from early reports. Check the latest official sources before relying on any case as an example.
How to check a token before investing
Checks cannot remove the risk, but they can filter out the most obvious traps. This is the practical side of DYOR (Do Your Own Research).
- Find the project's official links from several independent places, not only from an ad or a message.
- Search for the team. Real people with a verifiable history are a better sign than anonymous accounts.
- Open the token contract on a block explorer. Check whether the code is verified and whether the owner can mint, pause trading or change fees.
- Look at the liquidity pool. Check how much liquidity there is, who holds the pool tokens, and whether they are locked or burned.
- Look at the holder list. If a handful of wallets hold most of the supply, a dump is easy.
- Read any Smart Contract Audit report yourself: who did it, what it covered and which issues remain open.
- Use a honeypot-checker tool as one extra signal, and treat its result as a hint, not proof.
An audit, a liquidity lock or a clean checker result does not guarantee safety. Soft rug pulls and later contract changes can still cause losses. Only risk what you can afford to lose, and ask a qualified adviser if you are unsure.
What to do if you were rugged
Recovery is rare, so act calmly and quickly to limit damage and keep evidence. The steps below are general information, not legal advice.
- Stop sending money. Do not buy more to "average down" or pay any fee to "unlock" funds.
- Save evidence: wallet addresses, transaction hashes, dates, amounts, screenshots, chat logs and website addresses.
- Revoke token approvals for the affected wallet and move remaining assets to a new wallet if your wallet may be compromised.
- Report it to the exchange or platform you used, and to the launchpad or marketplace where the token was listed.
- Report it to the authorities in your country. In the US, the FTC and the FBI's IC3 accept crypto fraud reports. In Türkiye, contact the police or the public prosecutor's office, and check the Capital Markets Board (SPK) website for its current complaint procedure.
- Talk to a qualified lawyer, and a tax professional if you need to understand how the loss is treated.
The US Federal Trade Commission notes that crypto payments are typically not reversible and that you can usually get money back only if the recipient sends it back. The FBI's IC3 warns people to be wary of recovery services, especially those that charge an upfront fee.
"Recovery" services that contact you after a loss, or promise to get your money back for a fee, are a common second scam. Fake accounts also use official names, including the CMB's, so go to official websites directly.
Rug pull vs exit scam vs exploit
These terms overlap, and people often use them loosely. A rug pull is usually seen as one kind of exit scam. The main question is who takes the money and how.
| Term | Who takes the funds | Key feature |
|---|---|---|
| Rug pull | Project creators or insiders | Funds or liquidity drained, project abandoned |
| Exit scam | Operators of any project or platform | Take deposits, then disappear |
| Exploit | An outside attacker | Uses a bug or weakness in the code |
| Pump and dump | Early holders who sell into hype | Price pushed up, then sold off |
| Ponzi scheme | Operators, paid from new deposits | Early payouts funded by later investors |
An Exploit (Crypto Exploits & Hacks) is an attack by a third party on a protocol, while a rug pull comes from inside the project. A Ponzi Scheme pays earlier investors with later investors' money and can run for a long time, whereas a rug pull usually ends with one sudden withdrawal. In real cases the lines blur, and a scheme can combine several of these methods.
Frequently asked questions
What is a rug pull?
A rug pull is a crypto scam in which a project's creators raise money from investors, then abandon the project and take the funds or liquidity. Buyers are left with tokens that have little or no value and often cannot be sold. It is most common with new tokens, meme coins, NFT mints and small DeFi projects.
How does a rug pull work?
Creators launch a token, build hype and attract buyers. Then they remove liquidity from the trading pool, sell large holdings they kept for themselves, or mint and sell new tokens. The price falls close to zero within minutes or days. Some contracts also block selling, so ordinary buyers cannot leave while insiders cash out.
How can I spot a rug pull?
Look for an anonymous team, unlocked liquidity, supply held by a few wallets, promises of guaranteed returns, pressure to buy quickly and contract powers such as minting or blocking sales. No single sign proves a scam, and checks are never a guarantee. Read the contract data on a block explorer and verify claims independently.
Is a rug pull illegal?
Often yes, but it depends on the facts and the country. Taking money by deceiving buyers can be fraud, and US prosecutors have charged people over an alleged NFT rug pull with wire fraud and money laundering conspiracy. Rules on crypto assets differ between countries, including Türkiye, and intent can be hard to prove. Ask a qualified lawyer about a specific case.
Can you get your money back after a rug pull?
Usually not. Crypto payments are typically not reversible, and funds are often moved quickly through many wallets. Reporting to the platform and the authorities and keeping transaction evidence gives the best chance, but there are no guarantees. Be careful with recovery services that ask for upfront fees, because many are scams themselves.
What is the difference between a rug pull and a pump and dump?
In a rug pull, the creators drain funds or liquidity and abandon the project. In a pump and dump, a group pushes a price up with hype and then sells to latecomers, and the project may still exist afterwards. The two overlap, because a rug pull can include a pump and a dump by insiders.
Related terms
- Crypto Scam
- Honeypot
- Shitcoin
- Smart Contract Audit
- DYOR (Do Your Own Research)
- Exploit (Crypto Exploits & Hacks)
- Liquidity Pool
- Ponzi Scheme
- Sniper Bot (Crypto Sniping)
Sources
- Two Defendants Charged In Non-Fungible Token (NFT) Fraud And Money Laundering Scheme U.S. Attorney's Office, Southern District of New York (U.S. Department of Justice)
- Squid Game Token Crashes; Developers Say They've Left the Project CoinDesk
- Squid Game cryptocurrency investors left broke after alleged scammers pocket US$2.1 million Newshub / Stuff (New Zealand)
- Rug Pulls: Hard vs Soft Rugs RugDoc
- What To Know About Cryptocurrency and Scams U.S. Federal Trade Commission
- Cryptocurrency FBI Internet Crime Complaint Center (IC3)
- Dolandiricilik Suclarina Iliskin Duyuru (26 September 2024) Capital Markets Board of Turkiye (SPK)
- Izinsiz Sermaye Piyasasi Faaliyetleri Capital Markets Board of Turkiye (SPK)
This glossary entry is for general information and education only. It is not investment, tax or legal advice. Crypto assets are high-risk; check official sources before you act.