A rug pull comes from the phrase "pulling the rug out from under someone". The creators of a crypto project, token, or NFT advertise heavily and encourage users to buy and deposit, but once enough money has been collected, they withdraw the liquidity and vanish. The token's value effectively falls to zero and the victims cannot sell.
Common types#
- Liquidity withdrawal: the creator pulls all of the assets out of the exchange pool
- Sell lock (honeypot): the contract lets only the creator sell
- Unlimited token minting: the creator mints a huge number of tokens and sells them
- Abandoning the project after heavy promotion
Warning signs#
- An anonymous team with no track record
- A promise of very high, guaranteed returns
- Psychological pressure to decide quickly
- Unlocked liquidity and unaudited code
- Coordinated promotion across social media and influencers
Example#
Someone pre-sells a new, heavily advertised cafe, collects the pre-purchase money, and the cafe never opens. The difference here is that everything is digital and irreversible, and legal follow-up is also hard.
Prevention#
Before any interaction, check the team, the code audit, and whether the liquidity is locked. Commit only an amount you can afford to lose and do not trust promises of sure income. If you become a victim, report it to the relevant official authorities and law enforcement.