Over 300,000 scam tokens have been created, defrauding more than 2 million investors. Rug pulls—where developers abandon projects and steal investor funds—are the most common crypto scam. Approximately 90% of rug pulls happen within 48 hours of a token’s launch.
The good news: most rug pulls share obvious warning signs. This guide teaches you exactly what to look for before investing in any new crypto project.
What Is a Rug Pull?
A rug pull is when cryptocurrency developers abandon a project and steal investor funds. The name comes from the idea of “pulling the rug out” from under investors—one moment the project seems fine, the next it’s worthless and the developers have vanished with the money.
Rug pulls differ from hacks: a hack exploits vulnerabilities unintentionally left in code, while a rug pull is intentional theft by the project creators themselves.
Types of Rug Pulls
Hard Rug Pulls
Pre-planned scams from the beginning. Developers create a token with malicious code, build hype, and execute the scam quickly—often within hours or days of launch.
Soft Rug Pulls
More gradual abandonment. The team slowly reduces involvement, stops development, and dumps tokens over time. Harder to identify initially because the project may have started legitimately.
Liquidity Pulls
The most common method:
- Developers create a token and add liquidity to a DEX
- Marketing drives investors to buy
- Token price rises as people buy
- Developers remove all liquidity
- Investors cannot sell—token becomes worthless
Honeypots
Smart contract is coded so anyone can buy but only the developers can sell. Investors see the token in their wallet, try to sell, and discover they can’t.
Pump and Dump
Team artificially inflates the price through coordinated buying and marketing, then sells their holdings at the peak. Not always illegal, but leaves retail investors holding worthless bags.
Famous Rug Pull Case Studies
OneCoin ($4 Billion)
The largest crypto scam in history. Operated from 2014-2016, OneCoin had no actual blockchain—just a fake dashboard showing fake balances. Founder Ruja Ignatova, the “Cryptoqueen,” disappeared in 2017 and remains on the FBI’s most wanted list.
Squid Game Token ($3.4 Million)
Exploited the Netflix show’s popularity in 2021. The smart contract was a honeypot—investors could buy but couldn’t sell. Token rose from $0.01 to $2,861 before crashing to $0.003 in minutes when developers drained liquidity.
AnubisDAO ($60 Million)
Marketed as a “fair launch” meme coin in 2021. Raised $60 million in just 20 hours through a token sale. Hours later, a single wallet drained all funds. The project had no website, no audit, and anonymous developers.
Frosties NFT ($1.3 Million)
8,888 NFT collection with a detailed roadmap promising metaverse integration. After selling out, developers deleted all social media and vanished. Notable because the creators were later arrested and charged by the DOJ—one of the first criminal prosecutions for an NFT rug pull.
Warning Signs of a Rug Pull
Team Red Flags
- Anonymous developers with no track record – Legitimate teams usually have verifiable identities
- Fake team photos – Reverse image search reveals stock photos or other people’s images
- No LinkedIn or GitHub presence – Real developers have professional histories
- No previous successful projects – Experienced teams have portfolios
Tokenomics Red Flags
- Large percentage held by few wallets – If one wallet holds 20%+, they can crash the price
- Unlocked team tokens – No vesting schedule means they can dump immediately
- Massive supply inflation planned – Dilutes existing holders
- Buy/sell taxes over 10% – Often used to enrich developers
Technical Red Flags
- No smart contract audit – Audits catch malicious code
- Unverified contract – Source code not published on block explorer
- Mint function accessible to owner – Can create unlimited tokens
- Blacklist/whitelist functions – Can prevent specific addresses from selling
- Proxy contracts – Code can be changed after launch
Marketing Red Flags
- Unrealistic return promises – “1000x guaranteed” is always a lie
- Aggressive paid promotion – Excessive shilling by influencers
- Celebrity endorsements – Often fake or paid without disclosure
- Urgency tactics – “Buy now or miss out forever”
- Focus on price, not utility – No real use case discussed
Liquidity Red Flags
- Unlocked liquidity pool – Developers can remove at any time
- Low liquidity relative to market cap – Easy to manipulate
- Single wallet controls liquidity – Centralized risk
- No proof of liquidity lock – Claims without verification
How to Check for Rug Pull Signs
Step 1: Research the Team
- Google team member names
- Check LinkedIn for employment history
- Search GitHub for code contributions
- Look for previous project involvement
- Reverse image search profile photos
Step 2: Analyze the Smart Contract
- Is it verified on Etherscan/BscScan?
- Are there ownership functions that could be exploited?
- Can the owner mint unlimited tokens?
- Are there sell restrictions in the code?
Step 3: Check Token Distribution
- View holders on block explorer
- Top 10 wallets shouldn’t hold more than 20% combined (excluding liquidity/burn addresses)
- Large single holdings are dangerous
Step 4: Verify Liquidity Lock
- Check if LP tokens are locked
- Verify lock duration (should be months/years, not days)
- Use Team.Finance or Unicrypt to verify
- Locked liquidity means developers can’t remove it
Step 5: Test with Small Amount
- Buy a tiny amount ($10-20)
- Immediately try to sell
- If you can’t sell = honeypot = scam
Tools to Detect Rug Pulls
| Tool | Purpose | Link |
|---|---|---|
| Token Sniffer | Contract analysis, honeypot detection | tokensniffer.com |
| De.Fi Scanner | Security audit, rug checker | de.fi/scanner |
| GeckoTerminal | Built-in rug pull checker | geckoterminal.com |
| Honeypot.is | Honeypot detection | honeypot.is |
| BubbleMaps | Visual token holder distribution | bubblemaps.io |
| RugDoc | DeFi project reviews | rugdoc.io |
How to Protect Yourself
Before Investing
- Never invest in tokens less than 48-72 hours old
- Run every token through Token Sniffer and De.Fi Scanner
- Verify liquidity is locked and for how long
- Research the team thoroughly
- Read the whitepaper critically—vague promises are red flags
- Never invest more than you can afford to lose completely
During Investment
- Use a separate “degen” wallet for risky investments
- Take profits along the way—don’t be greedy
- Monitor team activity and communication
- If communication suddenly stops, consider exiting
Wallet Security
- Never share your seed phrase—for any reason, ever
- Revoke token approvals regularly using revoke.cash
- Use hardware wallets for significant holdings
- Keep hot wallet holdings small
What to Do If You’ve Been Rugged
- Document everything – Screenshots, transaction hashes, wallet addresses, communications
- Report to authorities – FBI IC3, local cybercrime units
- Report to platforms – Exchanges, social media platforms
- Warn the community – Reddit, Twitter, Discord
- Accept the loss – Funds are rarely recoverable
- Learn from it – Improve your due diligence for the future
Frequently Asked Questions
Is a rug pull illegal?
Yes, in most jurisdictions rug pulls constitute fraud or securities violations. However, enforcement is difficult when developers are anonymous and operate across borders. Some developers have been arrested (Frosties, for example), but recovery of funds is rare.
Can you recover money from a rug pull?
Rarely. Blockchain transactions are irreversible. Some victims have recovered funds through legal action when developers are identified and have recoverable assets, but this is the exception, not the rule.
How common are rug pulls?
Extremely common. Thousands occur annually. The vast majority of new tokens launched on DEXs are either scams or will fail. This is why due diligence is essential.
Are all anonymous teams scams?
No. Bitcoin’s creator, Satoshi Nakamoto, is anonymous. Some legitimate projects have anonymous teams. However, anonymity significantly increases risk—you have no recourse if something goes wrong.
Does an audit guarantee safety?
No. Audits check code at a specific point in time. Teams can still dump tokens, make malicious upgrades, or abandon projects. Audits reduce risk but don’t eliminate it.
Conclusion
Rug pulls are the most common crypto scam because they work—FOMO makes people skip due diligence. Protect yourself by:
- Never rushing into new projects
- Always verifying before trusting
- Using detection tools on every new token
- Treating any “guaranteed returns” as a scam signal
- Only investing money you can afford to lose completely
The crypto space has legitimate opportunities, but it’s also full of predators. Your best defense is knowledge and skepticism.
Related articles:
- DeFi Wallet Scams: How to Spot and Avoid
- NFT Art Scams
- What is a Crypto Presale?
