Rug Pull
A crypto exit scam where developers suddenly withdraw all liquidity or funds and abandon a project, leaving investors with worthless tokens.
What is Rug Pull?
A rug pull is a type of cryptocurrency scam in which the developers or founders of a project — typically a new token, DeFi protocol, or NFT collection — suddenly drain the project's liquidity or treasury and disappear with investors' funds. The name derives from the idiom 'pulling the rug out from under' someone. Rug pulls commonly take two forms: liquidity rug pulls, where developers remove the tokens they added to a DEX liquidity pool, crashing the price to near zero; and hard rug pulls, where the smart contract contains hidden malicious code (backdoors) that allow founders to mint unlimited tokens or freeze withdrawals. Warning signs include anonymous teams, unaudited code, locked liquidity with very short time periods, social media hype without substance, and unrealistically high yield promises. Rug pulls are most common in new DeFi ecosystems and NFT markets and account for a large share of crypto fraud losses annually.
Example
In 2021, the Squid Game token (SQUID) rose over 75,000% in days as promoters hyped it on social media, exploiting the popularity of the Netflix show. The anonymous developers had written an anti-sell mechanism — only the team could sell. They sold their entire holding within minutes, draining $3.38 million from the liquidity pool and leaving other holders with worthless tokens.
Source: Investopedia — Rug Pull