Few things sting like watching a crypto investment go to zero overnight because the people running it vanished with the money. These schemes, known as rug pulls, are a persistent risk in the crypto market, especially with new and lightly vetted projects. Understanding how they unfold, what red flags tend to show up beforehand and which habits can limit your exposure can help you avoid becoming the next victim.
Great for copy trading
Great for beginners
Advanced crypto trading
Disclaimer: This page is not financial advice or an endorsement of digital assets, providers or services. Digital assets are volatile and risky, and past performance is no guarantee of future results. Potential regulations or policies can affect their availability and services provided. Talk with a financial professional before making a decision. Finder or the author may own cryptocurrency discussed on this page.
A crypto rug pull is a type of scam where the people behind a cryptocurrency project exploit investors and then disappear with their money or deliberately make the token difficult or impossible to sell. Rug pulls can happen with new cryptocurrencies, decentralized finance (DeFi) projects, non-fungible token (NFT) collections and other blockchain-based projects.
The mechanics vary, but the result is usually the same: investors put money into a project expecting its token or assets to have value, while insiders take funds or dump their holdings. This can cause the token’s price to collapse, leaving investors with substantial losses.
Common rug-pull tactics include:
Not every failed cryptocurrency project is a rug pull. A token can lose value or a project can shut down because of poor management, technical problems, lack of funding or changing market conditions. A rug pull involves deliberate or deceptive actions by people connected to the project to take advantage of investors.
Most rug pulls follow four basic steps:
Rug pulls can take several forms, depending on how developers or insiders extract money from investors.
No single warning sign proves a project is a rug pull. Look for multiple red flags before buying.
| Red flag | What to check |
|---|---|
| Unlocked liquidity | Can developers withdraw the project’s liquidity at any time? |
| Concentrated ownership | Do a few wallets control a large share of the token supply? |
| Suspicious contract permissions | Can insiders mint tokens, freeze transactions or change trading rules? |
| You can’t sell | Can ordinary users buy but not sell the token? |
| Unverifiable team | Are the developers anonymous with no credible track record? |
| Unrealistic returns | Does the project promise guaranteed or unusually high profits or yields? |
| Extreme hype | Is marketing built around FOMO, urgency or promises of explosive gains? |
| Poor documentation | Is there no credible audit, whitepaper or explanation of the project’s tokenomics? |
| Suspicious trading | Are there unusual price or volume spikes, or activity concentrated among a few wallets? |
| Fake or AI-generated content | Are endorsements, team identities or promotional materials difficult to verify? |
An audit or locked liquidity doesn’t guarantee that a project is legitimate. These checks are most useful when considered together.
Rug pulls are one type of crypto scam, but they’re not the same as every scheme that causes investors to lose money.
| Scam | How it works |
|---|---|
| Rug pull | Project insiders take investors’ funds, dump their tokens or manipulate the project so investors can’t sell. |
| Pump and dump | Traders artificially drive up a token’s price before selling their holdings into the demand they created. |
| Honeypot | A token’s smart contract allows users to buy but prevents or severely restricts them from selling. |
| Ponzi scheme | Returns to earlier investors are paid using money from newer participants rather than legitimate profits. |
| Wallet drainer | A malicious website or smart contract tricks users into authorizing transactions that transfer their crypto or NFTs. |
| Fake exchange | A fraudulent trading platform accepts deposits but prevents users from withdrawing their money or assets. |
Rug pulls and other crypto scams have cost investors billions of dollars. The examples below show how different schemes can separate investors from their money, from tokens that prevent holders from selling to fraudulent projects that promise extraordinary returns.
| Rug pull/scam | What happened | Amount lost | Lesson |
|---|---|---|---|
| Squid Game Token | Buyers could purchase the token but couldn’t sell it, while developers withdrew its liquidity. | About $3.4 million(1) | Check whether selling is restricted and who controls liquidity. |
| OneCoin | A fraudulent cryptocurrency was marketed through a global multilevel-marketing network, attracting more than 3.5 million victims.(2) | More than $4 billion(2) | A polished project and aggressive marketing don’t make a cryptocurrency legitimate. |
| BitConnect | The project promised substantial and guaranteed returns through a supposed trading system before collapsing. | Approximately $2.4 billion(3) | Be skeptical of guaranteed or extraordinary returns. |
| LIBRA | The token surged after heavy promotion before collapsing, while about $251 million in cryptocurrency was withdrawn from its liquidity pool by wallets linked to its creator.(4) | About $251 million(4) | Look beyond hype and price movements and examine who controls the token and its liquidity. |
The amounts represent reported or alleged investor losses and, in the case of LIBRA, funds withdrawn from its liquidity pool.
Recovering money from a crypto rug pull can be difficult. Cryptocurrency transactions are typically irreversible, so there is usually no way to simply cancel a transaction after it has been confirmed.
The FTC recommends contacting the company or exchange used to send the cryptocurrency as soon as possible and asking whether the transaction can be reversed.(5)
If you’ve been affected by a rug pull:
A legitimate recovery service cannot guarantee that your cryptocurrency will be returned. Never give a supposed recovery service your wallet’s private keys or send additional cryptocurrency to “unlock” or recover your funds.
Crypto rug pulls can happen quickly, and once your money is gone, recovering it can be difficult. Before buying a token, check who controls the project, how its liquidity and token supply are distributed, whether the smart contract has risky permissions and whether you can actually sell. Then compare reputable centralized crypto exchanges to find the right platform.
SoFi combines traditional banking services and crypto trading in one platform, all while providing 24/7 support.
Learn about some major crypto hacks and what you can do to protect yourself.
Crypto promised financial freedom. Privacy coins ask whether that freedom includes keeping your business private.
Tokenized stocks put shares on the blockchain, but not every token gives you real ownership. Here’s how they work and where to buy them in the US.
Stablecoin can be one way to leverage lower-risk investments for greater protection against market volatility.
These sites can help you research cryptocurrency prices, market capitalization, trading volume and more.
What are ERC20 tokens, how do they work and what do they have to do with Ethereum and other cryptocurrencies? Find out here.
Learn how to buy some of the top market cap coins with our series of comprehensive guides.
Discover blockchain: what it is, how it works and who is exploring it in the US.
