What Is a Rug Pull in Crypto? How to Spot This Scam Early
A rug pull is a scheme where a crypto project's creators collect money and vanish, and the token goes to zero. Here's how it happens and which signs can make you suspect such a project in advance.
What it is
A rug pull is when a project's team suddenly takes investors' money. It's usually a new token on a decentralized exchange that's heavily promoted, and then the creators withdraw the liquidity or sell their coins, and the price falls almost to zero.
How it happens
| Type | What happens |
|---|---|
| Liquidity removal | The team pulls the coins from the pool, and the token can't be sold |
| Team dumping | The creators hold a huge share and sell it on the market |
| A trap in the code | You can buy the token, but you can't sell it |
| Disappearing | The website and social media vanish along with the money |
Signs of a dangerous project
- An anonymous team and no product.
- A large share of tokens held by a few wallets.
- Liquidity that isn't locked, or is locked only briefly.
- Promises of "10x" gains.
How to reduce the risk
The most reliable way is not to buy new tokens you learned about from ads. If you want to try, only use an amount you can afford to lose completely. Similar schemes include pump and dump and Ponzi schemes; the signs are covered in the article signs of a Ponzi scheme and the lesson how to avoid scams.
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- In a rug pull, the team runs off with the money, and the token goes to zero.
- Anonymity and a share concentrated in a few wallets are red flags.
- Don't buy new tokens from ads.
Frequently Asked Questions
Can I get my money back after a rug pull?
Almost never. Transactions are irreversible, and the creators are usually anonymous.
Do rug pulls happen with large coins?
Rarely. Most often they involve new small tokens on decentralized exchanges. But large projects can also collapse for other reasons.
How can I check whether a token can be sold?
There are services that check smart contracts, but they can't be fully relied on. For beginners, it's safer to stick to coins traded on major exchanges.
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