Rugpull in the crypto world: how this type of scam works and why it's so difficult to avoid

Key Points

• Rugpull is a form of cryptocurrency scam where project initiators suddenly withdraw investments and terminate the project, leaving participants with worthless tokens
• Such schemes are implemented through several methods: liquidity pool draining, embedded malicious code, or pure social manipulation
• Potential rugpulls can be identified by a number of warning signs: unknown team, lack of audit, unrestricted access to liquidity, and exaggerated promises
• The most reliable protection is independent project research and a critical attitude towards any new proposal

Introduction: why rugpull has become a common threat

Anyone involved even slightly in the cryptocurrency market has seen this story more than once. A new token appears, hype builds on social media, the price skyrockets within hours, and then — sharply drops to zero. The project disappears, the team remains silent, the website is taken down. Investors are left confused, trying to understand how they lost their money.

This is a classic picture of a rugpull scam that has stolen millions of dollars and left a trail of disappointment in the crypto community. Such incidents especially increased during the DeFi boom in early 2020s, when launching tokens became extremely simple and almost unregulated. Let’s understand what lies behind this term, how these schemes work, and most importantly — how not to become a victim.

Rugpull: definition and essence of the phenomenon

A rugpull in the cryptocurrency space is a scam where developers or project organizers abruptly cease development, withdraw the raised funds, and disappear, leaving investors with nearly worthless tokens.

To draw an analogy from real life: it’s like being invited to a group dinner, asked to pay in advance, and then the organizer simply leaves with the collected money without delivering the ordered dish.

Rugpull differs from classic pump-and-dump schemes in its technological sophistication. While traditional scams rely on information manipulation and creating artificial demand, rugpulls often involve more complex tools: malicious code in smart contracts, liquidity parameter manipulations, or complete blocking of token sale options for users.

The wave of such scams coincided with the rise of DeFi, when decentralized exchanges (DEX) became platforms that required little to no checks or regulation when launching new tokens. This opened almost unlimited opportunities for scammers to exploit naive investors seeking quick profits.

How it works: how rugpull is implemented

A rugpull can be planned by scammers from the outset or arise as an opportunity they decide to exploit. There are several main methods of executing such schemes.

( First method: liquidity pool theft

On decentralized platforms )like well-known DEXs###, each token requires liquidity for trading. Liquidity pools contain certain amounts of two assets — usually a new token and a stable asset (ETH, USDT, etc.).

Rugpull via liquidity occurs as follows:

• The project launches a new token and creates a liquidity pool, investing its funds
• Early participants start buying the token, its price rises, and the pool begins accumulating valuable assets
• The more people buy, the more ETH or USDT accumulates in the pool
• At some point, (often without warning), the project initiators completely or almost completely withdraw liquidity
• The pool is drained, and the token price collapses almost to zero

This type of rugpull is considered the most common and can happen within hours or days after launch.

( Second method: embedded malicious code

Some scam projects pre-program a trap directly into the smart contract. Instead of a sudden escape, the code contains hidden functions:

• Unlimited issuance: developers can generate unlimited tokens, causing hyperinflation and a total price collapse
• Honeypot contracts: tokens can be bought but cannot be sold — the sell function is blocked. As a result, tokens become practically dead in the investor’s hands
• Direct transfers: malicious code allows transferring tokens directly from users’ wallets without their consent

Such rugpull schemes are very difficult to detect without deep analysis of the source code. Sometimes scammers even mask malicious functions under complex code that activates only under certain conditions )for example, when enough funds are added to the pool###.

( Third method: social manipulation

Not every rugpull requires technical skills. Many scams are built solely on manipulation and exploitation of trust:

• The project creates hype on social media, attracts influencers, gains support from well-known investors )real or fake###
• Everything looks legitimate, the project seems promising, and investors contribute funds
• Once enough money is collected, the team disappears: accounts are deleted, the website goes down, communication ceases

This type is especially insidious because it relies not on technical tricks but on psychology and a simple scheme: create hype, gather funds, and vanish.

How to recognize potential rugpull: main red flags

Of course, having one or two of these signs does not guarantee the project is a rugpull. But a combination of several should raise serious suspicions.

( Anonymous team

The crypto community values privacy, but complete anonymity of the project creators is a clear downside. When no one knows who is behind the project, these people can easily disappear without accountability. Legitimate projects usually disclose at least the main team members.

) Lack of independent audit

An audit of the smart contract by an authoritative company helps identify errors, vulnerabilities, and embedded malicious code. A project without an audit is like a suitcase with no bottom: anything could be inside. Be especially cautious if the audit was conducted by an unknown or low-rated firm.

Open access to liquidity

If the project has not locked liquidity or set a vesting period for team tokens, nothing prevents the initiators from withdrawing all funds at any moment. Reliable projects usually lock liquidity for a long period ###from 1 to 4 years### and release team tokens gradually.

( Unrealistic promises

Any project promising miracle returns, guaranteed profits, or support from famous companies )without verification### should raise skepticism. Verify all claims through open sources.

( High price for minimal functionality

If a token has a huge market cap but its real use is unclear — this is a sign of a speculative bubble.

How to protect yourself: practical recommendations

There is no absolute protection against rugpull, but the risk can be significantly reduced.

) Conduct independent research ###DYOR###

Do not rely on social media posts and influencer recommendations. Study:

• The project’s technical documents (whitepaper)
• Token distribution and economic model
• Team history (if known)
• Developed functionality (how realistic is it?)

Use blockchain explorers to check token distribution and identify suspicious transaction patterns.

( Check liquidity status

Find out how long liquidity is locked for the project. Many reliable projects use third-party services for this, ensuring transparency.

) Look for public audit

Make sure the audit was conducted by an authoritative company, is up-to-date ###old reports may not cover recent changes###, and is publicly accessible.

( Use trusted platforms

When interacting with new projects, choose platforms that perform thorough checks. Reputable platforms apply strict criteria when listing new assets.

) Invest according to your risk tolerance

Never invest in unknown projects an amount you cannot afford to lose entirely.

Conclusion: rugpull as a reality of the crypto world

Rugpull is a grim but real aspect of the crypto space. Especially in rapidly growing segments like DeFi and NFTs, where dozens of new projects are launched daily with varying degrees of seriousness.

Although most teams operate with honest intentions, the lack of strict regulation still leaves ample room for scammers. However, the tools for analysis, educational resources, and auditing services are increasing, making it easier to identify potential scams.

The key takeaway: always conduct thorough research, approach new projects with a healthy dose of skepticism, and remember that if an offer sounds too good to be true — it probably is. Rugpull remains one of the main threats for inexperienced investors, but with a proper approach, the risk can be minimized.