What Are Rug Pulls and How You Can Avoid Them

What Is a Rug Pull?

A rug pull is an exit scam where developers launch a crypto project and attract investor funds. They then suddenly abandon it and disappear with the money, leaving investors with worthless tokens.

Common red flags:

• No audits

• Unlocked liquidity

• Anonymous teams

• Sudden price spikes

• Many tokens are held by only a few wallets.

Key Takeaways

• Rug pulls are an exit scam that happens when developers launch a crypto project to attract investor funds. They then disappear with the money, leaving holders with worthless tokens or other digital assets.

• Top warning signs of rug pulls are lack of audits, unlocked liquidity, and irregular token allocation.

• You can avoid rug pulls by checking for security audits, researching the project and team, and looking out for other warning signs listed above.

This article was updated in April 2025 by Vera Lim.

Rug pulls are a type of crypto scam. In a rug pull, teams raise funds by selling tokens, before suddenly shutting down the project and disappearing with the funds, leaving their investors holding worthless tokens.

Understanding Crypto Rug Pulls

In rug pull exit scams, developers create a token and list it on an exchange.

Here are some common strategies developers use to draw in as many victims as possible:

• Promise high returns.

• Promise exclusive digital products that will give them an edge.

• Hire popular personalities to aggressively promote their token on social media.

• Artificially increase value for their tokens through coordinated buying.

All these are designed to inspire the fear of missing out (FOMO) in investors, and as the hype builds, so does the amount of money locked into the project. 

Once the project has accumulated enough capital, the developers will suddenly withdraw all the funds and abandon the project, leaving their victims holding valueless tokens.

When it comes to rug pulls, prevention is better than cure, so let’s look at some tips on how to identify rug pulls.

How to Identify and Avoid Rug Pulls

There are usually warning signs around a rug pull project. These include:

• Loopholes that let project owners withdraw assets.

• Irregular token distribution, where a large amount of tokens are held by a small number of wallets.

• Promises of unrealistic yields and returns (may feature popular personalities). 

• Sudden unexplained spikes in token value.

• An anonymous team with no track records. 

With these warning signs, you can avoid rug pulls:

• Looking out for security audits: Reputable projects typically undergo security audits to ensure security. 

• Checking for loopholes: You can check for loopholes by researching the token thoroughly with tools like GeckoTerminal that highlights issues with the token.

• Reviewing token distribution: Look out for situations where most of the tokens are held by a few holders.

• Researching price surges: A sudden price increase for no reason may be designed to lure investors before developers cash out. 

• Verifying team legitimacy: Engage with the project’s social media and research team members on platforms like LinkedIn.

Learn more about how to protect yourself from rug pulls.

Common Types of Rug Pulls Explained

Liquidity Pulls

This exit scam happens when scammers withdraw assets from a token pool (assets used to facilitate decentralized trading). This causes the token’s value to drop due to a lack of buyers. 

Checklist to avoid liquidity pulls: 

• Security audits

• Team legitimacy

• Loopholes

• Unrealistic promises

Pump and Dump

The team drives up the price of a cryptocurrency (the “pump”) before selling off their holdings at the increased price causing the asset’s value to plummet (the “dump”). This leaves the investors holding worthless assets.

Checklist to avoid pump and dump: 

• Sudden price surges

• Irregular token distribution

• Unrealistic promises

Fake Project Launches

Scammers create fake projects to lure investors before disappearing, leaving investors holding worthless assets.

Checklist to avoid pump and dump: 

• Security audits

• Team legitimacy

• Unrealistic promises

Ponzi Schemes

Ponzi schemes promise high returns to early investors using funds from later investors with attractive referral benefits. At a certain point, investors can no longer withdraw their funds.

Checklist to avoid Ponzi schemes: 

• Unrealistic promises

• Team legitimacy

Famous Rug Pulls in History

Based on Chainalysis reports, rug pulls are decreasing in popularity, with $2.8 billion stolen in 2021 and approximately $496 million stolen in 2024. However, they can still occur, with the LIBRA exit scam happening as recently as February 2025.

Some of the most famous rug pulls are: 

• OneCoin: $4 billion

• Thodex: $2.7 billion

• LIBRA: $87 million

• Squid Game: $3.38 million

• Evolved Apes: $2.7 million