Rug Pull
A rug pull is a scam in which a project's creators suddenly withdraw funds or liquidity and disappear, leaving the token close to worthless.
A rug pull is a scam where the people behind a crypto project take investors' money and disappear. It often happens with new tokens on decentralized exchanges, where creators can drain the pool that gives the token its price. Knowing the warning signs is one of the cheapest forms of protection a trader has.
- Category
- Cryptocurrency and Blockchain
- Reading time
- 4 min
- Also called
- Exit scam, Liquidity pull, Pulling the rug
- Updated
Rug pull in plain words
In a rug pull, scammers raise money for a project that looks real, then shut it down and run off with the funds.1
They are usually exit scams run by developers or promoters who hype a project and then disappear with the money at a planned moment.2
The result for holders is usually a token that can no longer be sold for anything close to what they paid.
How a typical rug pull unfolds
Launch a new token
The creator launches a token and pairs it with a popular coin in a liquidity pool.
Build hype
Promoters push the project on social media to attract buyers.
Price climbs
Buying pushes the token price up, which draws in more buyers.
Drain the pool
In a common version, the creator suddenly pulls their funds out of the liquidity pool and the token's price collapses.1
Block exits
Check for traps such as rules that stop holders from selling, or hidden code that lets the developer drain the pool in one go.1
Disappear
The team goes silent, and holders are left with a token nobody will buy.
Worked examples
Example 1 — Liquidity drained
$980 lost (98%)A hypothetical trader buys 2,000 tokens at $0.50. The creator then removes the pool, and the price falls to $0.01.
| Cost | 2,000 × $0.50 = $1,000 |
| Value after | 2,000 × $0.01 = $20 |
| Loss | $1,000 − $20 = $980 |
The creator emptied the liquidity pool in one move, and the token crashed.1
Example 2 — A sell block
$3,000 that cannot be soldA hypothetical token shows a $3,000 paper value in a trader's wallet, but the contract only lets the creator's address sell.
| Paper value | $3,000 |
| Sellable value | $0 |
Holders found they couldn't sell — a common feature of rug pulls.1
Example 3 — Sizing as protection
At most $100 at riskA hypothetical trader with a $10,000 account caps any brand-new token at 1% of the account.
| Max stake | $10,000 × 1% = $100 |
| Worst case if rugged | −$100 |
| Account left | $9,900 |
Promises of returns that sound too good to be true usually are.3
Rug pull vs ordinary price crash
| Aspect | Rug pull | Ordinary crash |
|---|---|---|
| Cause | Deliberate theft by insiders | Selling pressure from the market |
| Liquidity | Often removed by the creator | Thins out but usually remains |
| Recovery chance | Very low | Possible over time |
| Team behaviour | Goes silent or vanishes | Usually keeps communicating |
Where rug pull awareness helps
Screening new tokens
Check who controls Liquidity before buying.
Limiting damage
Strict Position Sizing keeps one scam from sinking an account.
Reading contracts
Spot sell limits that create hidden Counterparty Risk.
Judging hype
Fast pumps with thin Volume deserve extra doubt.
Advantages and disadvantages
Advantages
- Knowing the pattern helps you spot red flags early.
- Simple checks (locked liquidity, audits) cut risk.
- Small position sizes cap the damage.
- Awareness makes hype less persuasive.
Disadvantages
- Losses are often total and permanent.
- Recovery through courts is slow and uncertain.
- Scams can look professional and audited.
- Anonymous teams are hard to trace.
Going deeper
Read as far as you need. Each level builds on the one before it.
Why new tokens are risky
Beginner
Regulators counted at least 20 scams in DeFi between 2020 and October 2024, most of them rug pulls.4 New tokens with anonymous teams are the most common setting.
Hard and soft rug pulls
Intermediate
A hard rug pull relies on malicious code — a hidden backdoor in the smart contract.1 A soft rug pull is slower, with insiders selling large holdings over time.
Influencers and timing
Advanced
These schemes are often run by the very people promoting the project.2 Watching who promotes a token, and who holds its supply, matters as much as the chart.
Common mistakes
Trusting hype
Popular posts do not prove a project is real.
Ignoring liquidity locks
Unlocked pools can be drained in one transaction.
Going all in
One bad token can wipe out a large share of an account.
Skipping a test sell
Some contracts let you buy but not sell.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A rug pull is a scam where insiders take investors' money.
- Draining the liquidity pool is the classic method.
- Hidden sell limits are another warning sign.
- Losses are usually close to total.
- Small sizes and basic checks are the best defence.
Frequently asked questions
Is a rug pull illegal?
Can I get my money back after a rug pull?
Does locked liquidity guarantee safety?
Further learning
- Liquidity
Why pool liquidity sets a token's price.
- Counterparty Risk
Trusting unknown teams and contracts.
- Position Sizing
Capping how much a scam can cost.
- Risk per Trade
Planning losses before you buy.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. Department of the Treasury. Illicit Finance Risk Assessment of Decentralized Finance (2023) (opens in a new tab) Checked .
- IOSCO. Decentralized Finance Report (OR01/2022) (opens in a new tab) Checked .
- Kraken Support. Protect yourself from crypto scams (opens in a new tab) Checked .
- European Supervisory Authorities (EBA and ESMA). Joint Report on recent developments in crypto-assets (Article 142 MiCAR, 2025) (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.