What Is a Rug Pull in Cryptocurrency? How Scammers Drain Your Funds and How to Avoid Them

What Is a Rug Pull in Cryptocurrency? How Scammers Drain Your Funds and How to Avoid Them
Nov, 25 2025

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A rug pull in cryptocurrency is when the people behind a project suddenly vanish with all the money investors put in-leaving everyone holding worthless tokens. It’s not a glitch. It’s not a market crash. It’s a planned theft. And it’s happened to over 2 million people worldwide since 2020. You don’t need to be a tech expert to get caught in one. All you need is to trust a flashy ad, a celebrity tweet, or a promise of 10,000% returns. The truth? Most of these projects are built from day one to fail. And when they do, your money is gone for good.

How a Rug Pull Actually Works

Think of it like a carnival game where the operator secretly controls the outcome. A group of anonymous developers creates a new token-maybe it’s called something catchy like $MoonBucks or $DoggyDollar. They make a website that looks professional. They post on Twitter, Telegram, and Discord. They pay influencers to hype it. Within hours, the token is trading on decentralized exchanges like Uniswap or PancakeSwap. Prices shoot up. People rush in. Then, without warning, the developers drain the liquidity pool-the money everyone deposited to make trading possible-and disappear.

This isn’t rare. In 2022 alone, rug pulls stole over $2.8 billion. That’s more than the combined losses from FTX, Celsius, and Voyager. And unlike exchange hacks, where a platform gets breached, rug pulls happen because you willingly gave your money to a project that was never meant to last.

Hard Rug Pulls vs. Soft Rug Pulls

Not all rug pulls are the same. There are two main types:

  • Hard rug pulls use malicious code. The smart contract is designed to trap you. For example, it might block you from selling your tokens while letting the developers dump theirs. The infamous $SQUID token from the Squid Game scam did this. Investors couldn’t sell, even as the price collapsed. The developers pulled over $3 million in just days.
  • Soft rug pulls don’t need code tricks. Instead, the team pumps the token using fake volume, bot accounts, and coordinated shilling. They buy their own tokens to inflate the price. They create fake social media buzz. Then, when the price peaks, they sell everything and walk away. No hacking. No code exploit. Just pure deception.

According to Coinbase’s 2023 data, 68% of rug pulls involve malicious code. The rest? Pure marketing fraud. Both are equally devastating.

Where Rug Pulls Happen (And Why)

Rug pulls thrive on decentralized exchanges-especially those that let anyone list a token with no review. BNB Chain (formerly Binance Smart Chain) is the #1 hotspot. It accounted for nearly half of all rug pulls in 2022. Why? Low fees, fast transactions, and almost no oversight. Ethereum and Polygon are next, but they’re safer because more projects get audited.

The problem isn’t just the tech-it’s the rules. Anyone can launch a token in minutes. No ID checks. No licenses. No accountability. That’s the beauty of DeFi. But it’s also the flaw. Scammers exploit that freedom. They know retail investors won’t check the contract. They count on hype to override caution.

Investor watching a fake crypto chart as invisible scammer pulls strings of bots and timers.

Red Flags That Mean Trouble

You don’t need to be a coder to spot a rug pull. Here are the top warning signs:

  • Anonymous team - If you can’t find names, LinkedIn profiles, or past projects, walk away. Over 90% of rug pulls have no verified team.
  • Unlocked liquidity - Liquidity is the money that keeps the token tradable. If it’s not locked for at least 6 months (preferably a year), the devs can pull it anytime. Solidus Labs found projects with unlocked liquidity are 11.7 times more likely to rug pull.
  • No audit - A real project gets audited by firms like CertiK or OpenZeppelin. If there’s no audit report, or if the audit is from a shady firm you’ve never heard of, that’s a red flag. 83% of rug pull projects had no legitimate audit.
  • Too-good-to-be-true APY - Promises of 5,000%, 10,000%, or even 100,000% annual returns? That’s not innovation. That’s a trap. Legitimate DeFi projects rarely offer more than 10-20%.
  • Developer wallet holding too much - If the team owns more than 15% of the total supply, they can crash the price anytime. Check the tokenomics on BscScan or Etherscan.

One user on Reddit lost $12,000 after joining a presale with a 10,000% APY promise. The project had no audit, no team, and unlocked liquidity. Within 48 hours, it was dead.

How to Protect Yourself

Avoiding a rug pull takes effort-but it’s not hard if you follow a simple checklist:

  1. Check the team - Search their names on LinkedIn. Look for past crypto projects. If they’re anonymous, assume it’s a scam.
  2. Verify liquidity lock - Go to BscScan or Etherscan. Find the liquidity pool. Is it locked? For how long? Look for a lock contract with a timer. If it’s unlocked or locked for less than 90 days, leave.
  3. Read the audit - If there’s an audit, read it. Not just the summary. Look for mentions of “unlimited minting,” “owner can withdraw liquidity,” or “no sell restrictions.” If those appear, it’s dangerous.
  4. Use detection tools - Sites like RugDoc.io and TokenSniffer scan contracts in real time. They flag honeypots, unlimited minting, and locked wallets. CoinHunters’ tool caught $SQUID 12 hours before launch.
  5. Watch the community - Are people just repeating hype? Are there bots posting “TO THE MOON!” every 30 seconds? Real communities ask questions. Scam communities only cheer.

One investor in New Zealand saved $8,000 by checking a token’s liquidity on Etherscan before investing. The lock was set to expire in 24 hours. He didn’t buy. The project rug-pulled the next day.

Shield of verification protections blocking a wave of scam tokens and fake social media hype.

What Happens After a Rug Pull?

Once the devs drain the funds, recovery is nearly impossible. Blockchain transactions are permanent. There’s no customer service. No refund button. No central authority to call.

Some victims try to trace the stolen funds. Tools like Chainalysis can track where the money went-but that doesn’t bring it back. Law enforcement rarely acts unless the amount is huge (over $10 million). The SEC has filed cases against a few big rug pulls, like Flokinomics, but most small projects vanish without consequence.

The only real justice? Learning from it. And telling others.

Is There Any Hope?

Yes-but it’s slow. Major exchanges like Binance and Coinbase now require mandatory audits and 12-month liquidity locks for new listings. That’s cut rug pulls on their platforms by over 90%. Tools like Unicrypt make it easy for projects to lock liquidity automatically. And more projects are “doxxing”-revealing their real identities. Coinbase found that doxxed teams reduce rug pull risk by 89%.

MIT’s Digital Currency Initiative says mandatory 180-day liquidity locks could reduce rug pulls by 63%. Ethereum is even working on a new standard (ERC-7208) that would force developers to disclose lock status upfront.

But here’s the hard truth: as long as DeFi remains permissionless, rug pulls will exist. You can’t regulate away human greed. But you can protect yourself.

Final Rule: If It Sounds Too Good to Be True, It Is

The crypto world rewards curiosity. But it punishes naivety. Don’t chase returns. Chase transparency. Don’t follow influencers. Follow the code. Don’t trust hype. Trust verification.

You don’t need to be the next crypto millionaire. You just need to keep your money.

Can you get your money back after a rug pull?

Almost never. Once the developers drain the liquidity pool, the funds are sent to wallets they control. Blockchain transactions are irreversible. Law enforcement rarely steps in unless the amount is massive (over $10 million). Tools like Chainalysis can track where the money went, but they can’t recover it. Your best defense is prevention-not recovery.

Are all new crypto projects rug pulls?

No. Thousands of legitimate DeFi projects launch every year. But the majority of new tokens-especially those promoted on social media-are scams. Solidus Labs found that 42% of new DeFi projects show at least three red flags: anonymous teams, no audit, and unlocked liquidity. If a project has none of those flags, it’s more likely to be real. Always verify.

How do rug pulls differ from Ponzi schemes?

Ponzi schemes pay early investors with money from new ones, and they last months or years. Rug pulls are one-time exits. The team builds a token, pumps it fast, drains the funds, and disappears-often within days. There’s no ongoing payment structure. It’s not a pyramid. It’s a robbery with a countdown clock.

Can you trust audits from any firm?

No. Only audits from well-known firms like CertiK, OpenZeppelin, or PeckShield carry weight. Some scam projects hire fake auditors or pay for a basic review that just says “no critical issues.” Always check the auditor’s website. Look for their public report. If it’s just a one-page PDF with no technical details, it’s likely meaningless.

Is it safe to invest in tokens on decentralized exchanges?

It’s risky-but not impossible. Decentralized exchanges like Uniswap let anyone list a token, which makes them a magnet for scams. But you can still invest safely if you follow the verification steps: check the team, verify liquidity locks, read the audit, and use detection tools. Never invest based on hype alone. Treat every new token like a potential trap until proven otherwise.

Why do so many rug pulls happen on BNB Chain?

BNB Chain has low transaction fees and fast confirmation times, making it easy and cheap to launch tokens. But it also has minimal oversight. Unlike Ethereum, where many projects get audited, BNB Chain has thousands of new tokens with no review. In 2022, nearly half of all rug pulls occurred there. The same low barriers that make it great for innovation also make it perfect for fraud.

Do exchanges like Binance and Coinbase prevent rug pulls?

Yes, on their own platforms. Binance’s Launchpad now requires a minimum 12-month liquidity lock and a full audit before listing. Coinbase requires audits for every new token. That’s why rug pulls on these exchanges dropped from over 5% in 2021 to under 1% in 2023. But if you’re buying tokens on decentralized exchanges, you’re on your own. Always verify.

What’s the difference between a rug pull and a pump-and-dump?

A pump-and-dump can happen with any asset-stocks, crypto, even meme coins. It’s when a group artificially inflates the price and sells. A rug pull is a specific type of pump-and-dump that uses a malicious smart contract to trap investors. In a rug pull, you can’t sell even if you want to. In a regular pump-and-dump, you can sell-but you’re likely the last one holding.

Are there any legitimate projects that look like rug pulls?

Sometimes. Early-stage projects may have unlocked liquidity because they’re still raising funds. Some teams are anonymous because they’re in countries with crypto bans. But if a project has multiple red flags-no audit, anonymous team, huge developer allocation, and no clear roadmap-it’s far more likely to be a scam than a misunderstood startup. Always wait for proof, not promises.

How can I learn to check a smart contract myself?

Start with Etherscan or BscScan. Look up the token’s contract address. Check the “Read Contract” section. Look for functions like “withdrawLiquidity,” “setMintable,” or “disableSell.” If you see those, it’s dangerous. You don’t need to code-just learn to spot these keywords. YouTube has free 15-minute tutorials on how to read contracts. Spend an hour learning. It could save you thousands.

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17 Comments

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    Jenny Charland

    November 25, 2025 AT 17:31
    OMG I just lost $5k to a rug pull last month 😭 totally thought $MoonBucks was gonna make me rich. Never trusting another influencer again. 🤡
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    preet kaur

    November 26, 2025 AT 12:21
    In India, so many young people jump into crypto without knowing anything. My cousin invested in a token with a dog logo and 5000% APY. He cried for a week. We need better financial education, not just warnings.
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    Emily Michaelson

    November 26, 2025 AT 13:30
    I always check liquidity locks on BscScan before even clicking 'connect wallet'. If it's not locked for at least 6 months, I walk away. It's not hard. Takes 2 minutes. Saved me from 3 different scams already.
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    Amanda Cheyne

    November 27, 2025 AT 02:03
    This is all a setup. The government and big crypto firms WANT you to lose money so they can push central bank digital currencies. They let rug pulls happen so you'll beg for 'regulated' crypto. They're the real scammers. Look at how fast Binance cracked down after they made billions off the chaos. Coincidence? I think not.
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    Anne Jackson

    November 28, 2025 AT 20:13
    Americans are too lazy to do basic research. If you can't read a contract or check a liquidity lock, you shouldn't be investing. This isn't Wall Street. This is the wild west. If you get robbed, it's your fault. Stop crying and learn. Or stay in stocks where the rules are clear.
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    Matthew Prickett

    November 30, 2025 AT 12:44
    I swear the devs are all in the same Discord server. I saw the same wallet address pop up in three different rug pulls last month. One was called $PineappleCoin, another $ZombieBucks. Same code, same timing. They're running an assembly line of fraud. Someone needs to expose this network.
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    Caren Potgieter

    December 2, 2025 AT 04:32
    I lost everything last year but I'm still here. Crypto is risky but it's also the only way people like me in South Africa can even dream of building wealth. Just be smart. Check the lock. Don't chase moon. I'm learning slow but I'm learning
  • Image placeholder

    Jennifer MacLeod

    December 2, 2025 AT 13:35
    I used to think audits were just marketing fluff until I saw one that actually said 'owner can withdraw all liquidity at any time'. That was the red flag. Now I just screenshot the contract and post it in the thread. Helps others too
  • Image placeholder

    Linda English

    December 4, 2025 AT 13:03
    I really appreciate how thorough this post is. It's so important to remember that the emotional appeal of 'get rich quick' is what makes people ignore the logical red flags. The fear of missing out overrides common sense. And when you're emotionally invested-literally and figuratively-it's hard to walk away. But if you take a breath, check the contract, and wait 24 hours, most of these projects just... fade away. And that's okay. You didn't miss out. You avoided a disaster.
  • Image placeholder

    asher malik

    December 5, 2025 AT 00:51
    You know what's wild? The same people who scream about government surveillance will happily give their private key to some guy named 'CryptoGuru' on Telegram. We live in a paradox. We want freedom but we don't want responsibility. The blockchain doesn't care if you're smart or dumb. It just executes. And that's the real lesson here. It's not about the tech. It's about the human.
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    Julissa Patino

    December 6, 2025 AT 21:47
    Liquidity lock? Audit? Who has time for that? I just follow the hype. If it's trending on X, it's legit. Plus, I read somewhere that 90% of crypto is scams anyway so why not gamble? I'm not here to be a nerd. I'm here to get rich. And if I lose? Eh, it's crypto. It's all a game.
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    Omkar Rane

    December 8, 2025 AT 03:28
    In my village in India, we have a saying: 'Don't trust the man who smiles too much.' Same with crypto. If the team is too eager to explain, too loud on Twitter, too perfect on their website-it's a trap. I learned this the hard way. Now I wait. I watch. I see if the project lasts a month. Most don't. And that's the real filter.
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    Daryl Chew

    December 9, 2025 AT 14:49
    They're all connected. The same people behind $SQUID are now doing $MoonBucks. They're using the same Telegram bots, same Discord admins, same fake influencers. This isn't random. It's an organized crime syndicate. And the regulators? They're asleep. Or worse-complicit.
  • Image placeholder

    Tyler Boyle

    December 9, 2025 AT 20:15
    The real issue isn't rug pulls-it's the lack of standardized on-chain verification protocols. Without a universally accepted, immutable, and transparent layer for liquidity lock status, team doxxing, and audit certification, retail investors are left in a probabilistic minefield. We need a decentralized reputation oracle-think Chainlink meets ENS-where projects are scored based on verifiable on-chain metadata. Until then, it's just gambling with extra steps.
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    Jane A

    December 10, 2025 AT 14:38
    If you didn't check the contract, you deserved to lose. No one forced you. You wanted the easy money. Now you're mad? Grow up. This isn't babysitting. This is crypto. If you don't know how to read a blockchain, don't touch it.
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    jocelyn cortez

    December 12, 2025 AT 12:15
    I used to think I was the only one who felt this way. I don't invest anymore. I just read. I watch. I help others spot red flags. It's not about the money. It's about keeping people safe. You don't have to be rich to be wise.
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    Gus Mitchener

    December 14, 2025 AT 08:32
    The paradox of DeFi is that its greatest strength-permissionless innovation-is also its fatal flaw. The absence of gatekeepers enables both radical inclusion and catastrophic exploitation. The market cannot self-correct when the cost of failure is borne by the least informed. We are witnessing a structural failure of incentive alignment, not merely a series of frauds.

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