What is a rug pull and how can you prevent it?

May 20, 2025 | 5 min read

What is a rug pull?

A rug pull is when the founders of a cryptocurrency suddenly remove all liquidity and disappear, causing the price to collapse and leaving investors with worthless tokens.

As an investor, you think you are making a smart investment, you think you will get rich quickly, and then suddenly the team behind the project disappears and you are left with cryptocurrencies that are worthless. Unfortunately, this is a common problem in financial markets.

Example: Suppose you buy tokens from a new project that claims to be “the future of DeFi.” Everything looks professional, there is a nice website, and very high profits are promised. You invest €1,000. A week later, the entire project is offline, social media is gone, and your tokens are worthless. You have been the victim of a rug pull. They have essentially stolen your money and run away. The police cannot help you, and the government is currently working on a framework to combat these kinds of practices. That is why we want to protect you from a rug pull.

Key Takeaways

A rug pull is a crypto scam where the founders disappear with the money.
This often happens through liquidity removal, honeypots, or dumping after hype.
Typical signs are anonymous teams, clever tricks in the code, and exaggerated promises.
A pump and dump is not a rug pull, but it is misleading and risky.
Prevent rug pulls by doing thorough research and thinking critically.

What does a rug pull look like?

Not every rug pull is the same. Sometimes they disappear overnight (the “hard” rug pulls), sometimes they drag on for a few weeks or months while pretending everything is okay (the “soft” rug pulls).

Here are a few well-known variants:

Liquidity stealing

The creators suddenly withdraw all liquidity from a pool on, for example, Uniswap. As a result, you can no longer sell your tokens and the price plummets to zero. This happens mainly in DeFi (decentralized finance), where there is a lot of freedom, but also a lot of risk.

Example: You have bought tokens that you can only trade on a certain DEX (such as Uniswap). The creators remove all ETH from the pool, and suddenly no one wants (or can) buy your tokens anymore.

Honeypot coins (Limiting sell orders)

Here, the scammers code the smart contract in such a way that only they can sell the tokens. You can buy, but as soon as you try to sell, it doesn't work. We call this a honeypot.

Example: You buy a new coin that is trending on Twitter. When you try to sell it afterwards, you get an error message. Meanwhile, the creators quietly cash in on their profits.

Dumping after hype (Dumping)

The developers keep a large stock of tokens. They build hype through influencers or social media, let the price rise because everyone is buying, and then dump their stock all at once. The price crashes and you are left with a bag of worthless tokens.

Example: A well-known YouTuber promotes a coin, you jump in and see the value rise. An hour later, everything has crashed. What happened? The developers have just sold everything.

Smart contracts, smart scammers (Smart contract scam)

The scammers build a smart contract in which they put in backdoors. For example, you are not allowed to sell, but they are. They often have a story ready: “We're working on a bug fix,” “An update is coming soon,” and so on. But in the meantime, they're slowly draining you.

Notorious example: Squid Game Token. The price went from a few cents to thousands of dollars. Everyone thought they were going to get rich. Until it turned out that no one could sell... except the creators. They disappeared with millions.

So what's the difference between a rug pull and a pump and dump?

A pump and dump is something else, but not exactly fair either. Here, the idea is that a group of people (often the founders themselves) quietly buy up a coin. At an agreed moment, they shout: 'BUY NOW!', and then everyone rushes in. The price shoots up, and at that exact moment, they sell everything.

Example: You are in a Telegram group where it is said that on Friday at 8 p.m., a secret coin is going “to the moon.” You buy immediately when the moment arrives. But within a few seconds, the price starts to drop. Why? Because the insiders are selling everything just as you got in.

How do you recognize a rug pull?

Fortunately, you can protect yourself reasonably well against a rug pull. Here are some tips:

Do your research: Who is behind the project? Are they real people with LinkedIn profiles? Or do you only see vague pseudonyms and stock photos?
Look at audits: Has the project had an independent audit? If no audit has been done, this is an additional risk.
Check the community: Is there an active community (on Discord, Telegram, Reddit)? Or just bots shouting “to the moon”?
Watch out for red flags: Words like “1000% profit in a week,” “exclusive pre-sale,” or “buy now or miss out” are often signs of a scam. So is exaggerated marketing.
Beware of influencers: Influencers often receive coins in exchange for marketing, and as soon as the price rises, they sell. Sometimes the influencers also have no understanding of the market and don't know what they're getting themselves into.

Some famous rug pulls

Finally, here are a few scams you may be familiar with or can Google:

OneCoin – Not a real blockchain, but it did raise billions.
Thodex – A Turkish crypto exchange whose founder suddenly disappeared with the money of thousands of customers.
Squid Game Token – As mentioned above, a classic example of how FOMO and hype are abused.
AnubisDAO and Uranium Finance – More complex DeFi projects that ultimately turned out to be ordinary scams.
BitConnect – Bitconnect lured investors with fake profits and then disappeared, leaving them with worthless tokens.

Conclusion

Crypto can be amazing, but also dangerous if you're not careful. As long as there's money to be made, there will be people trying to steal it. So always stay critical, follow your gut, and if something sounds too good to be true, it probably is.