What is a rug pull in cryptocurrency? How to avoid rug pull scams in the crypto market? Rug pull is one of the most destructive scams in the cryptocurrency market, causing countless investors to suffer huge losses. However, as long as you master the key skills to identify risks and establish a rigorous investment strategy, you can effectively reduce the threat posed by rug pulls.
Since the inception of Bitcoin, the cryptocurrency market has developed into a multi-trillion dollar field, attracting countless investors. However, high returns come with high risks.
Scams abound, among which the most infamous is the 'Rug Pull'. Such scam tactics are common, with many investors pouring large amounts of money into seemingly promising projects, only to find the development team has suddenly disappeared, causing token prices to collapse and assets to become worthless.
With the rapid development of decentralized finance (DeFi) and emerging blockchain projects, rug pull incidents have also become increasingly complex and difficult to identify. As investors chase high returns, how to protect their funds and avoid becoming the next victim is a challenge that every cryptocurrency participant must face in 2025. Identifying the risk signs of rug pulls, understanding the common tactics of scams, and mastering effective hedging strategies can help reduce potential losses and ensure the safety of investments.
In rug pull incidents, the project side usually creates trust in a carefully designed manner to attract investors to buy tokens, then uses technical means to quickly drain liquidity or manipulate the market, causing the assets in investors' hands to suddenly become worthless. Some projects even disguise themselves as partners of well-known companies or use fake white papers and celebrity endorsements to create hype, making people mistakenly believe that this is a real opportunity. However, when the project side runs away with the funds, investors realize they have been scammed.
Fake white papers and celebrity endorsements create hype, misleading people into thinking this is a genuine opportunity. However, when the project side runs away with the funds, investors find themselves deceived.
However, the decentralized nature of blockchain makes it difficult to recover losses from such scams.
Key points of rug pulls:
New label group Missing - unlocked liquidity funds, the team can withdraw at any time and run away.
● The smart contract code contains malicious backdoors - the code may prohibit selling or allow the team to issue unlimited tokens. Anonymous teams cannot be tracked - scam projects often hide the identities of developers, making it impossible to hold them accountable after they run away. Exaggerated profit promises - attracting investors with extremely high returns, but in reality, it’s a scam.
· Low community engagement and transparency - few project updates, community filled with bots, and the development team does not respond to inquiries.
Common characteristics of rug pulls
In 2025, as the fields of Web3 and DeFi evolve, the methods of rug pull scams may become more covert, but they will still leave traces. The most typical rug pull projects usually have the following characteristics:
First, the lack of a liquidity lock mechanism is a key warning sign. Many legitimate DeFi projects lock liquidity within smart contracts, ensuring that the team cannot withdraw funds at will. However, scam projects often avoid this mechanism, allowing the team to withdraw all funds at any time, causing market crashes. Investors should check whether liquidity is protected by a locking mechanism before participating in any new projects.
Secondly, the security of the smart contract code is also an important evaluation criterion. Many rug pull projects will embed malicious code in their smart contracts, such as prohibiting investors from selling tokens or allowing developers to issue unlimited new coins. Investors can use open-source tools to check smart contract code or look for reports from third-party audit firms to ensure that the project has no backdoor programming.
An anonymous team is also a warning sign.
Moreover, an anonymous team is also a warning sign. While there are many anonymous founders in the cryptocurrency space (such as Satoshi Nakamoto), many rug pull projects use anonymity to conceal identities, making it impossible for investors to trace accountability. Before investing, prioritize teams with transparent backgrounds and review their past blockchain records to assess credibility.
Extremely exaggerated profit promises are also a typical scam tactic. When a project promises '100x returns' or 'no-risk high returns', it often indicates significant risk. High returns typically come with high risks, and investors should remain rational, avoiding being misled by short-term profit temptations.
Community activity and project transparency can also help assess risk. Genuine blockchain projects typically have active communities, and the development team regularly updates development progress and responds to investor inquiries. If a project’s community is filled with bot accounts, the development team is reluctant to respond to inquiries, or suddenly stops updating after fundraising ends, it is likely a scam.
What is a rug pull scam?
Divestment refers to a developer or team withdrawing support for a project, rendering investors' tokens worthless, or causing the token's value to drop significantly below what seemingly viable projects would support.
Rug pulls typically follow a similar pattern: an individual or team hypes up a project or token to attract traders on decentralized exchanges (DEX), who buy tokens from liquidity pools. These buyers exchange valuable tokens like ETH or SOL for newly launched tokens.
Then, as shown in the figure below, the project's liquidity was canceled, making transactions difficult or even impossible. The project owner or team vanished with the funds.
In other cases, the team may terminate support for the project, or the team may miss critical development milestones, leading to a price drop. The team may also sell off tokens, which would also cause a price drop.
NFT rug pulls typically follow a familiar pattern. An NFT creator promotes a new NFT series extensively, attracting investors to join this exclusive ownership community. After the NFT minting (purchasing with ETH or other cryptocurrencies), the creator disappears with the money, and the community ceases to exist. What remains are NFTs of questionable value.
Comparison of soft rug pulls and hard rug pulls
Not all 'rug pulls' are malicious or premeditated scams, hence the distinction between 'soft pulls' and 'hard pulls'. The severity of rug pulls also varies; soft pulls may offer recovery opportunities or at least more time to exit positions before tokens become worthless.
Hard rug pulls, colloquially known as 'rug pulls', are premeditated malicious acts. Developers, owners, or teams exploit investors' fear of missing out (FOMO) to defraud them of their money.
What is a soft rug pull?
Soft pulls may involve deceptive practices, such as exaggerating expectations or making false promises. In other cases, the project may simply be poorly managed, leading to a loss of investor confidence and a gradual decline. Team members themselves may sell tokens while they still have value.
These types of 'rug pulls' often stem from initial good intentions but later go awry, leading to investor losses.
False promises in marketing: Unlike stocks, cryptocurrencies are largely unregulated, which opens the door for project teams or owners to make exaggerated promises about tokens or projects. Over time, the inability of the project to meet established goals becomes increasingly apparent, leading to token sell-offs.
· Failure to deliver a complete roadmap: A project roadmap allows investors to understand the planned contents of the project, enabling informed decisions. However, the team may be unable or lack the motivation to deliver the planned features or marketing activities that would add value to the token. Missing a milestone can lead to a loss of investor confidence and selling.
Teams dumping excessive tokens: The team usually receives a generous allocation of tokens at launch. If the team sells off to the market and holds a large supply of tokens, the attractiveness of the chart will decrease, leading the token to lose momentum and be sold off.
What is hard rug pulling?
Hard rug pull scams are the back-alley thugs of the cryptocurrency world, even though they often seem promising at first. In hard rug pull fraud, project creators aim to defraud investors of their money through one or more methods.
For example, a new token may have hard-coded restrictions at launch, preventing sales except for whitelisted addresses or delaying sales. The result is an impressive chart that attracts new buyers. Before investors can sell time-restricted tokens, the creators reclaim liquidity, halting all trading. The tokens become worthless.
Removing all liquidity: Tokens traded on a DEX require a liquidity pool to facilitate trades. The example above illustrates a situation where liquidity has been removed. Due to the hard-coded cooling period of the token, non-whitelisted traders cannot sell, which means no one can provide liquidity. As a result, the token dies, and the money is gone.
● Clone tokens: Multiple tokens may share the same code. This could indicate that one or more of these tokens are future opportunistic tokens, as seen in the example above.
Exit scams usually involve initial coin offerings (ICOs) or presales, where project owners hype the project to raise funds from investors. The project may not exist at all, or it may achieve some simple milestones to show progress to investors and continue raising funds. Ultimately, project owners often disappear.
Common carpet pulling patterns to avoid
Pump and dump schemes typically follow a similar pattern, giving investors the opportunity to avoid falling into traps. Be wary of hype on social media platforms. It’s often wise to avoid newly launched tokens before you have time to research the project, the team, trading activity, and the token itself.
The impact of hype train marketing and social media
Platforms like Twitter (X), Telegram, Discord, and Warpcast provide an online gathering place for cryptocurrency investors seeking community and may provide some alpha information about new opportunities. However, scammers also exploit these platforms to hype their projects, attempting to defraud investors.
When the prospect of hundreds of thousands or even millions of dollars in returns is available, well-funded social media marketing campaigns become nominal business expenses. Beware of promises of 100 times or higher returns. While certain tokens may achieve this, cryptocurrencies allow developers to easily create a new token that they do not genuinely support.
Silence from developers post-launch
Look for official Telegram or Discord groups and understand the interaction within the group. In particular, check for updates from developers or the project team. Silence is not always golden. A lack of community engagement may be an important signal. The developers may have abandoned the project or created community groups to attract early investors and build an attractive chart.
Pulling liquidity and funds
Tokens traded on DEX require a liquidity pool, so even rug pulls require a liquidity pool - until the liquidity is removed.
For instance, a new token may initially have a small pool worth a few thousand dollars. As traders buy the new token (often using ETH or SOL), the token's value continues to grow, and the liquidity pool expands. This makes the token appear more attractive, but it could be just a smokescreen.
Tokens in the liquidity pool are likely to each account for half of ETH or SOL. If the project owner withdraws the liquidity of the token, the token often does not recover in time. The liquidity pool owner will take ETH or SOL, while the other tokens in the pool become worthless.
Look for tokens with locked liquidity. This means that the DEX pool cannot be immediately closed because it uses a smart contract with a locking period.
Websites like Dexscreener and Dextools show whether liquidity is locked. The example above shows that the WIF/SOL pair locked $19 million in liquidity. This does not guarantee that WIF will rise, but it ensures the manner of trading, whether buying or selling.
Notorious examples of rug pull scams
Let’s take a look at some of the worst 'rug pull' phenomena that can be seen across various fields in the cryptocurrency industry.
1. OneCoin
The largest cryptocurrency Ponzi scheme, OneCoin, raised $4 billion by promising cryptocurrency investment returns to investors and promoting the company as a legitimate business, defrauding billions of dollars.
Ruja Ignatova, the Bulgarian founder of OneCoin, disappeared without a trace in October 2017 and is wanted by US authorities for fraud and conspiracy. She is currently the only woman on the FBI's Ten Most Wanted list and one of 11 women to appear on that list. If convicted, she could face up to 20 years in prison.
According to court documents, she claimed that OneCoin would become the 'Bitcoin killer', while the company's main business was selling course materials, defrauding what she referred to as 'fools' out of billions of dollars. OneCoin's trading was not active, nor did it have a blockchain. Instead, the currency was based on SQL servers.
After Ignatova went missing, her brother Konstantin Ignatov took control but was arrested in 2019 and ultimately pleaded guilty to fraud and money laundering.
2. Thodex
Thodex, a cryptocurrency exchange established in Turkey in 2017, went missing in April 2021, with investor funds worth over $2 billion. At that time, the now-defunct exchange's founder and CEO, Faruk Fatih Özer, claimed that they had to stop trading due to a cyber attack, assuring that investors' funds were safe before disappearing.
In 2021, Turkey launched an investigation into Özer for alleged fraud and establishing a criminal organization, arresting dozens of SODEMS employees and seizing computers from the company. Interpol also issued a red notice, meaning police worldwide were instructed to find and arrest him.
In September 2022, Özer was arrested in the Albanian city of Vlore. According to blockchain analysis company Chainanalysis, approximately 90% of the total value lost due to rug pulls in 2021 was attributed to this fraudulent centralized exchange.
According to local reports, the state attorney general is seeking 40,564 years of imprisonment for all individuals involved, including Özer, as the indictment includes over 2,000 plaintiffs.
3. AnubisDAO
This Dogecoin project raised $60 million in ETH (13,597 ETH) from investors in exchange for the native ANKH token. Within less than 24 hours of the project's launch, the funds and investments in the pool were sent to another address and never recovered.
Due to a lack of liquidity for trading, the price of the ANKH token dropped to zero.
AnubisDAO claims to be a fork of OlympusDAO, which is a decentralized reserve currency backed by bond sales and liquidity providers. At the launch, the team only had a Discord server and a now-defunct Twitter account but no website or white paper, and the developers used pseudonyms.
"AnubisDAO should serve as a warning for investors assessing similar opportunities. Chainalysis stated in its 2021 cryptocurrency crime report: 'The most important takeaway is to avoid using new tokens without a code audit.'
4. Squid Game (SQUID) token
One of the worst scams in cryptocurrency is the Squid Game (SQUID) Web3 project, initiated by an influencer in 2021 on the Binance Smart Chain and hyped through extensive media coverage. According to Solidus Labs, 12% of BNB Chain tokens are scams.
With the popularity of the Netflix series, the Squid Game token raised $3.3 million from investors. The developers then drained the liquidity pool of SQUID and absconded with users' funds.
Solidus Labs pointed out in a report that the Squid Game token is one of the most infamous honeypot vulnerability examples, as it called external contracts in its deployment, making it appear to be a rapidly growing commemorative coin in the eyes of many users.
The project has a website, but it is filled with grammatical errors and anti-dumping mechanisms. A Twitch streamer captured this vulnerability in real-time during a live broadcast, showing that the market cap of the token plummeted from $2.2 trillion to nearly zero. As of the time of publication, the trading price of SQUID was $0.0096, down over 96% from its historical peak.
5. Mutant Ape Planet (MAP) NFTs
The Mutant Ape Planet (MAP) NFT series is a knockoff of the popular Mutant Ape Yacht Club (MAYC) NFT series. It was recently arrested and charged with fraud.
A 24-year-old French citizen Aurelien Michel, residing in the UAE, was detained after landing at New York's Kennedy Airport. According to the indictment, Michel and other unnamed defendants marketed their NFT project to potential buyers, promising that their purchases would yield 'rewards, raffles, exclusive access to other cryptocurrency assets, and support from the community wallet', among other benefits. The developers also vaguely promised to acquire 'metaverse land', but none of these promises were fulfilled.
It is alleged that after all the NFTs were sold, the defendant transferred funds to other wallets controlled by Michelle, who acknowledged the rug pull in the community's Discord channel under the pseudonym 'James'.
Renowned blockchain analyst ZachXBT stated that on-chain data indicates that Michel profited millions from several other similar fraudulent cases, such as Fashion Ape NFTs and Crazy Camels.
How to avoid rug pull scams?
To avoid becoming a victim of a rug pull, investors should adopt a multi-layered risk assessment strategy. First, thoroughly research the project background, including team members, past experiences, and partners. Legitimate projects usually have clear white papers and provide detailed technical and development plans, while scam projects are often filled with vague descriptions.
Secondly, use a blockchain explorer to check the activity of the smart contract. For example, you can see if funds are concentrated in large holders, if there are a lot of unusual transactions, or if there are records of the development team suddenly withdrawing large amounts of money. These signs could indicate the risk of a rug pull.
Furthermore, diversifying investments is also an effective way to reduce risk. Spreading funds across different projects instead of betting on a single high-risk token can reduce the losses from a rug pull.
Additionally, stay vigilant and do not easily trust hype online. Many rug pull projects create an atmosphere of FOMO (fear of missing out) on social media, encouraging investors to buy in large amounts in a short time. If a project's promotion is overly aggressive without substantial technical backing, you should be cautious.
Conclusion on rug pull scams
Rug pull is one of the most destructive scams in the cryptocurrency market, causing countless investors to suffer huge losses. However, as long as you master the key skills to identify risks and establish a rigorous investment strategy, you can effectively reduce the threat posed by rug pulls. In 2025, as the fields of DeFi, GameFi, and Web3 expand, new types of scams will emerge. Investors should remain rational and carefully evaluate each investment opportunity to truly achieve capital appreciation and avoid becoming the next victim of a rug pull.
That’s a detailed introduction to what a rug pull scam in the cryptocurrency market is, and how to avoid it. Hope everyone likes it!
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