A cryptocurrency scam where the developers of a token or project suddenly withdraw all liquidity or abandon the project, leaving investors with worthless tokens and no way to recover their money.
A cryptocurrency scam where the developers of a token or project suddenly withdraw all liquidity or abandon the project, leaving investors with worthless tokens and no way to recover their money.
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A rug pull is named after the expression "pulling the rug out from under someone." In the crypto world, it describes projects that appear legitimate but are designed from the start to steal investors' money. The developers create hype, attract investment, then disappear with the funds.
There are several types of rug pulls. Liquidity pulls involve removing all funds from a decentralized exchange's liquidity pool. Sell-order exploits let developers sell but prevent investors from doing so. Dump schemes involve developers selling massive pre-mined holdings.
The DeFi (Decentralized Finance) ecosystem is particularly vulnerable because anyone can create a token and list it on decentralized exchanges without verification. The lack of regulation and the pseudonymous nature of blockchain make rug pulls difficult to prevent or prosecute.
The Squid Game token (SQUID) launched in October 2021, riding the popularity of the Netflix show. It surged 23,000,000% in value before the developers drained all liquidity, stealing approximately $3.3 million. Investors couldn't sell because the smart contract was designed to only allow buying.