April 18, 2025

10 min

What Is a Rug Pull And How to Avoid It?

Every cryptocurrency investor faces the inherent risk of losing funds, with one of the most hazardous and disheartening situations being a “rug pull.” This refers to a fraudulent scheme where the project’s creators abruptly vanish, seizing all the invested capital with them. In this article, we will explore what is a crypto rug pull, how to recognize a rug pull, outline the necessary precautions to avoid falling victim to scammers, and guide you through the crucial steps of verifying a cryptocurrency before making any purchase.

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What Is a Rug Pull In Crypto?

A rug pull is a type of fraud where the developers of a project steal all the investors’ funds, leaving them empty-handed. The term “rug pull” comes from the idea of abruptly pulling away the rug—essentially, the creators of the token suddenly withdraw liquidity, sell their assets, and vanish without a trace. This can occur in any type of project, from decentralized finance (DeFi) startups to new meme coins, where investors often lack insight into the true intentions of the project’s team.

It’s important to note that most of these tokens do not get listed on major centralized exchanges (CEX) but are instead traded exclusively on decentralized exchanges (DEX). As a result, before making any purchases on DEX platforms, you should exercise extreme caution and conduct thorough due diligence to minimize the risk of falling victim to a rug pull.

How Does a Crypto Rug Pull Work?

The process of cryptocurrency rug pull can be divided into several stages:

Preparation: Scammers create a new, fake cryptocurrency project. These projects often come with polished websites, whitepapers, and roadmaps, designed to appear legitimate. The scammers work to build trust, drawing in potential investors by promising high returns on their investment.
Marketing and creating buzz: The scammers, along with their accomplices (often referred to as “shillers”), begin aggressively promoting the project across various social platforms such as Telegram, X, Reddit, YouTube, and others. The goal is to generate excitement and hype around the project, making it seem like a must-have investment opportunity.
Buyer influx: As the buzz grows, unsuspecting traders start buying into the token, driving up its price and market capitalization. This influx of buyers creates the illusion of a successful project and encourages even more investors to join.
Rug Pull: At this point, scammers execute the rug pull in one of two primary ways:

Selling All Tokens: They sell all their tokens on an exchange, draining the liquidity pool and causing the price to crash.
Exploiting Vulnerabilities: They exploit weaknesses in the project’s smart contract, withdrawing funds from reserves or liquidity. In either case, the scammers take off with all the funds, leaving investors with worthless tokens.

Disappearance: After pulling off the scam, the developers and internal contributors disappear without a trace. They delete their social media accounts, remove websites, and erase any evidence of their involvement in the project, leaving investors with no way to contact them.

Types of Rug Pulls

There are several types of rug pull, each with its own characteristics. Let’s take a look at what types of rug pull there are:

Hard Rug Pull—This is the most straightforward and dangerous type of scam. Fraudsters launch a project, attract investor funds, and then immediately withdraw all the liquidity or sell their tokens on the open market. This sudden action causes the price of the assets to plummet, and investors lose their entire investment. A hard rug pull happens quickly and without warning, making it the most devastating form of fraud.
Soft Rug Pull. In a soft rug pull, scammers don’t withdraw all the funds at once but rather do so gradually over time. They slowly remove liquidity or sell their tokens covertly, which makes the scam more difficult to detect in its early stages. Investors may not realize that the project is heading toward a collapse, as the price manipulation happens subtly. Soft rug pulls often involve an extended period of price manipulation, allowing scammers to extract funds in smaller, less noticeable increments.
NFT Rug Pull. This type of scam involves projects that are based on non-fungble tokens (NFTsi). Scammers create an NFT collection, generate interest from potential buyers, and then “pull the rug” by selling their own NFTs. As the collection gains traction and more buyers invest, the scammers take the funds and vanish, leaving investors with worthless NFTs that have no market value.

How to Spot a Rug Pull in Crypto?

To recognize a rug pull and avoid scams, it is worth paying attention to the following anomalies and key signs of a potential rug pull:

Developer anonymity. If the project’s team is anonymous or provides minimal information about themselves, it’s a major red flag. Legitimate projects tend to be transparent about their team’s identities and qualifications. If the developers are hiding behind pseudonyms or have no verifiable background, it may indicate a scam.
Promises of unrealistically high returns. Be cautious if a project promises guaranteed or abnormally high returns within a short time frame. Such claims are typically a ploy to attract investors and quickly raise capital before the project collapses. Remember, in the crypto world, high returns often come with high risks, and promises of quick profits are usually too good to be true.
Lack of information about the project or its team. A lack of comprehensive details about the project or its development team is another warning sign. If the project has vague goals, an unclear roadmap, or doesn’t provide adequate information in the White Paper, it’s likely a scam. A well-structured White Paper should clearly outline the project’s objectives, technical aspects, development timeline, and the use of funds.
Lack of transparency and audits. If a project hasn’t undergone any smart contract audits or doesn’t provide evidence of independent security checks, it’s a significant red flag. Absence of audits suggests that the project may be poorly designed or, worse, an outright scam. Transparent projects typically have their contracts audited by reputable firms, and they make the audit results accessible to the public to ensure the integrity of their code and security.

How to Avoid Rug Pulls?

To avoid falling victim to a rug pull, it’s important to follow a few key precautions:

DYOR — do your own research. Before investing in any project, thoroughly investigate it. Read the White Paper, roadmap, and assess how realistic the goals and promises are. Look into the project’s team, their experience in the crypto space, and examine reviews and opinions from other investors and users. This will give you a clearer understanding of the project’s credibility and potential.
Check Liquidity and Security: Ensure the project has sufficient liquidity and that there are stable trading pairs available. If liquidity is low or if only a small number of users can trade tokens, it could be a red flag. Additionally, confirm that the project’s smart contract has undergone an independent audit for vulnerabilities. Lack of transparency in this area is a significant risk.
Utilize professional tools. Take advantage of token and smart contract analysis services and tools to assess the security of a contract and review the project’s history. These tools can help identify suspicious activities, such as unauthorized changes to a smart contract or large, frequent transactions that could signal manipulation. Popular tools for this purpose include Rug Check, ApeSpace ,DEXTools, Token Sniffer.
Be Cautious with “Hot” New Projects: New projects can attract a lot of attention and hype, but they may not be fully vetted or stable. Instead of getting swept up in a short-term marketing campaign, assess a project’s long-term potential. Evaluate its goals, team, and development roadmap to gauge whether it has a solid foundation for sustainable growth.

Is Rug Pulling Illegal?

Rug pulling is illegal and, in most jurisdictions, constitute violations of financial fraud, fraud, and consumer protection laws. While the regulatory landscape for cryptocurrencies and blockchain technology is still evolving, actions associated with a rug pull can result in criminal liability and lawsuits. Scammers who orchestrate such schemes are committing fraudulent activities by misappropriating investors’ funds, and legal consequences can follow, even in less-regulated environments. As cryptocurrency continues to gain mainstream attention, governments and regulatory bodies are increasingly focused on addressing these types of crimes, and perpetrators may face severe penalties if caught.

Notable Crypto Rug Pull Examples

Here are some of the most notable examples of crypto rug pulls:

MANTRA

On April 13, 2025, the price of $OM suddenly plummeted by over 90%, dropping from $6 to $0.37. Many believe the Mantra team sold off their tokens, triggering the sharp decline.

The team claims the drop was due to a “malicious forced closing of positions,” but it has all the hallmarks of a classic token being rug pulled scenario. The project’s market cap collapsed from $5.9 billion to $419 million, sparking rumors of a massive off-exchange token sale by the developers.

This situation draws comparisons to the collapse of Luna and Terra, but unlike those cases, there’s no clear reason for the fall, making the whole situation even more puzzling.

$OM Ragpool. Source: https://whitebit.com

Squid Game Token (SQUID)

The rug pull involving the Squid Game token became one of the most notorious examples of fraud in the cryptocurrency world. Launched in October 2021, the SQUID token was inspired by the popular TV series Squid Game. The project quickly gained attention, promising unique opportunities to participate in games and earn profits. As the token’s value skyrocketed, it attracted a growing number of investors.

However, once the token reached its peak, the creators executed a classic rug pull. They withdrew all the funds and locked investors out of selling their tokens. The price of the SQUID token collapsed, leaving investors with worthless coins. This case became a prime example of how scammers exploit popular cultural trends to raise capital, only to disappear with the funds.

AnubisDAO

The AnubisDAO project raised approximately $60 million in ETH, promising investors $ANKH tokens. However, after securing the funds, the organizers transferred them to their own wallet and vanished, leaving the token without any liquidity. The project lacked both a website and a whitepaper, and its developers remained completely anonymous. Despite these red flags, many investors continued to pour hundreds of thousands of dollars into the project, hoping for a return. In the end, they became victims of one of the largest rug pulls in the history of cryptocurrency.

BitPetite (BitPetite Token)

The BitPetite project was launched in 2021 and quickly garnered attention from investors, promising high returns. However, just days after its launch, the developers drained all the funds from the liquidity pool, leaving investors with worthless tokens. As a result, the token price plummeted, and the project vanished without a trace.

KISHU

In 2023, the cryptocurrency project KISHU promised investors high returns through its innovative meme strategy. However, after a brief period of growth, the token became linked to a rug pull. The developers drained funds from the liquidity pool, causing the token price to crash. The project’s lack of transparency and the anonymity of its creators ultimately led to investors losing their funds.

Mutant Ape Planet (MAP)

Frenchman Aurelien Michel created the NFT collection Mutant Ape Planet (MAP) and defrauded investors of $2.9 million. The collection turned out to be a knockoff of the renowned Mutant Ape Yacht Club project, with promises of exclusive rewards and access to valuable assets. In reality, token buyers received worthless fakes.

Michel was arrested at John F. Kennedy Airport in New York, and it was later revealed that he was also involved in another rug pull, the Crazy Camel Club project, which defrauded investors of $1.6 million.

How AI Can Help Prevent Rug Pulls?

Artificial intelligence (AI) could become a powerful tool in preventing rug pulls within the cryptocurrency space. Machine learning algorithms can be used to analyze smart contracts for potential vulnerabilities, such as unauthorized fund withdrawal capabilities or hidden features that could lead to fraud. AI can also monitor transactions for anomalies, detect suspicious activities, and flag potential threats before they result in losses for investors.

Additionally, AI can assess the reputation of crypto projects by reviewing developer information, their previous work, and community feedback. This would help identify projects with low credibility, raising awareness among investors and reducing the risk of falling victim to fraudulent schemes.

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Conclusion

Rug pull scams continue to be one of the biggest threats to crypto investors, but with the right awareness and caution, it’s possible to avoid falling into this trap. It’s crucial to remember that the more transparent and verified a project appears, the lower the chances of encountering scammers. Always conduct thorough research and make use of available security screening tools to safeguard your funds.

FAQ

Rug pulls are most commonly seen with meme tokens, new and lesser-known projects, as well as tokens created on popular platforms like Solana and Ethereum. These projects often lack transparency or a proven track record, making them prime targets for fraudulent schemes.

If the whitepaper lacks detailed information about the project, its team, goals, and underlying technology, it’s a major red flag. Additionally, be cautious if the profit promises seem too good to be true, as unrealistic returns are often a tactic used by scammers to lure in unsuspecting investors.

Always check the contract address for any vulnerabilities, and thoroughly research the project's team and community. If the project raises any doubts or seems questionable, it's better to avoid the risk altogether. Trustworthy projects tend to be transparent and open, so any lack of clarity should be treated with caution.

One of the biggest crypto rug pulls in history happened with the Squid Game Token in 2021, when scammers withdrew over $3 million, leaving investors with worthless tokens.

Signs of a rug pull include developer anonymity, lack of transparency, unrealistic promises, and drastic token price fluctuations. Be wary of projects with unaudited smart contracts and poor liquidity as well.