A rug pull is a type of crypto exit scam where a project’s developers or insiders suddenly withdraw all liquidity or dump their token holdings, collapsing the price to near zero and leaving investors with worthless tokens. The name refers to the expression “pulling the rug out” from under someone. Rug pulls are one of the most common forms of crypto fraud, particularly in the meme coin and DeFi space where anonymous teams can launch tokens and liquidity pools with minimal accountability. They range from obvious, low-effort scams to sophisticated schemes with months of fake development activity.
Types of rug pulls: Hard rug — developers drain the liquidity pool or run a smart contract exploit to steal funds instantly; Soft rug (slow rug) — developers gradually sell their large token allocations over time, depressing price while maintaining the appearance of legitimacy; Exit scam — project raises funds (via presale or VC) then disappears. Red flags to identify potential rug pulls: anonymous team with no verifiable history; unaudited smart contract; developer wallet holding 30%+ of token supply; liquidity not locked; unrealistic APY promises; no real product or roadmap; paid influencer shilling; and sudden large transfer of developer tokens to exchanges. Tools like Token Sniffer, RugCheck, and DEXTools can help identify high-risk tokens before investing.
Example: Squid Game Token (2021) raised $3.38M from retail investors. Developers had built in a “sell block” — no one except insiders could sell. They dumped all tokens in minutes, crashing the price from $2,861 to $0.003, and disappeared with the funds.
Learn more: CoinGecko — What is a Rug Pull?
