Rug Pull

A rug pull is a scam in which a crypto project's creators attract investor funds and then abruptly drain them, most often by removing the liquidity that allowed the project's token to be traded. The name evokes yanking the rug out from under buyers: one moment the token trades normally, the next its liquidity pool is empty and the token is unsellable, its price effectively zero.

The classic mechanism exploits how decentralized exchanges work. A concrete example: a team launches a new token, pairs it with ETH in a liquidity pool, and promotes it heavily. Buyers swap ETH into the pool for the token, filling the pool with valuable ETH. Because the team holds the LP tokens, they withdraw the entire pool — taking the ETH — and vanish. Variations include minting hidden supply and dumping it, or 'honeypot' code that lets people buy but blocks selling. Softer versions, where a team simply abandons the project and drifts away with raised funds, are often called slow rugs.

A common misconception is that rug pulls only happen in obscure corners — memecoin launchpads and new-token frenzies produce them daily, sometimes hours after launch. Warning signs include anonymous teams, unlocked or unburned LP tokens, concentrated holdings, unaudited contracts with owner privileges, and outsized promised yields. Locked liquidity and renounced contract ownership reduce, but do not eliminate, the risk.