Rug pull
A rug pull is a crypto scam in which a project’s creators disappear with the money. The tokens bought by others can then become almost or completely worthless.
What is a rug pull?
The creators first build trust and hype around a new token. Then they suddenly take money out of the project or sell their own large supply of tokens.
This often involves liquidity: money needed to buy and sell tokens. If the creators withdraw that liquidity, holders may no longer be able to sell their tokens. The price can then drop sharply.
Sometimes the restriction is built into a smart contract. This is a program with rules for a token. Buyers may be able to buy tokens but not sell them, while the creators can.
An example of a rug pull
You buy tokens from a new crypto project with a professional website and big promises. Soon afterward, the website and social media accounts are gone.
The creators have withdrawn the project’s liquidity. As a result, there are hardly any buyers for your tokens, and they’re worth almost nothing. This shows how a rug pull works: the creators leave, and others are left holding worthless tokens.
Why are rug pulls important in crypto?
A rug pull is a major risk with new crypto projects, especially when a token is surrounded by a lot of hype. News about a team that has disappeared, withdrawn liquidity, or a token that can’t be sold may therefore point to a possible rug pull.
Signs such as anonymous creators, exaggerated profit promises, and little clear information can indicate extra risk. They don’t automatically prove that a project is a scam, but they are reasons to take a closer look.
A rug pull is not the same as a pump and dump. In a pump and dump, the price is driven up first, and insiders sell afterward. In a rug pull, the creators often disappear with the money or make it impossible to sell.
