You’ve probably seen it before: a new token launches with sky-high promises, influencers hype up the chart, traders dream of 100× gains… and then, boom!
The price collapses, the devs vanish, and your “investment” is worth zero.
This isn’t market volatility. This is a rug pull
What Is a Rug Pull?
In crypto, a rug pull is a type of exit scam in which the developers of a blockchain project create hype, attract investor capital, and then suddenly withdraw liquidity or funds, leaving token holders with worthless tokens.
The phrase comes from the expression “pull the rug out from under someone,” a perfect metaphor for how suddenly support disappears
Technically, this happens because blockchain transactions are irreversible and decentralized. Once you send tokens to a smart contract or liquidity pool, there’s no central authority to “refund” you if the developers vanish
There are two main categories of Rug Pull:
Hard Rug Pulls
These are built into the contract itself. The code intentionally enables liquidity drains, selling restrictions, or hidden mint functions. They are illegal by design, but technically hard to prosecute because developers may be anonymous.
Soft Rug Pulls
Here, the team behaves legitimately at first, building the project and its community but ultimately exits once interest peaks. This might take weeks or months and isn’t always illegal — but the financial impact is the same.
How Rug Pulls Work — Mechanisms Behind the Scam
There are a few ways rug pulls are implemented technically:
i. Liquidity Pool Withdrawal
Most tokens exist on decentralized exchanges (DEXs) like Uniswap or PancakeSwap, which use liquidity pools to enable trading.
- Developers initially deposit (or “lock”) liquidity — a reserve of tokens and a paired asset (like ETH).
- Once enough traders buy in and liquidity grows, the developers remove all liquidity.
- With no liquidity, no one can trade the token, and its price collapses to nearly zero.
This is the classic hard rug pull — tools built into the code make it easy to drain funds but impossible for holders to sell.
ii. Smart Contract Manipulation
Some rug pulls involve malicious smart contract functions that were coded in from the beginning:
- Token functions that let the creators mint unlimited coins.
- Contracts that act as a honeypot, letting people buy the token but not sell it.
- Backdoors that allow unauthorized transfers.
These tricks can be buried under complex logic and are nearly impossible to spot unless the contract has been audited by trusted security firms.
iii. Social Engineering + Hype
Not every rug pull uses fancy code. Some are purely social:
- Projects build excitement through Discord, Telegram, influencers, and marketing.
- Once enough money pours in, the developers simply stop communicating and abandon the project.
In that case, there may be no malicious code — just a community‑driven exit scam. That’s why some rug pulls are technically in a gray area of regulation.
Notable Real‑World Rug Pulls
One of the most talked‑about rug pulls came from the Squid Game token (SQUID), which spiked from fractions of a cent to thousands of dollars before crashing to almost zero once developers withdrew liquidity.
Another NFT rug pull, Frosties launched in early 2022 with a collection of 8,888 NFTs that quickly sold out. The project brought in roughly $1.3 million, but as soon as the funds were received on OpenSea, they were transferred to different wallets. The Discord server was deleted, and the project’s Twitter account posted a final message that simply said, “I’m sorry.”
Red Flags to Watch out for:
While no method is foolproof, the following are technical red flags that often precede rug pulls:
- Unlocked liquidity: developers can withdraw it anytime.
- No audit: unverified smart contract code means hidden functions may exist.
- High dev token ownership: if founders hold most tokens, they have outsized control.
- Anonymous team: no transparent identities means accountability is weak.
These are the kinds of signals researchers focus on when building automated systems to detect scams.
Rug Pulls Are Not Just “Bad Luck”, but they do highlight why education, transparency, and tech safeguards matter as the space evolves.
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