What is a rug pull?
When a token's creators take the money and run, and how to check a token before you buy.
A rug pull is a crypto scam where the people behind a token or project attract buyers' money and then suddenly take it, by selling all their tokens, removing the funds from the trading pool or using hidden code, leaving buyers with tokens that are worth almost nothing. They're most common with new tokens and memecoins.
The main types
| Type | What happens |
|---|---|
| Liquidity pull | The creator withdraws the coins backing the token's trading pool on a decentralized exchange. With nothing left to trade against, the token can't be sold for anything. |
| Dump | Insiders who were given or bought a large share cheaply sell all at once into buyers' demand. |
| Honeypot | The token's code lets you buy but blocks selling, or charges a hidden 100% sell tax. |
| Hidden powers | The contract lets the owner mint unlimited new tokens, freeze wallets or change fees later. |
| Soft rug | A project raises money, then slowly abandons development while the team cashes out. |
How one unfolds, step by step
- Someone creates a token with a catchy name, puts some of it and $20,000 of ETH into a trading pool, and keeps most of the supply.
- Paid promoters, fake accounts and a slick website build hype. Early buyers see big gains and post screenshots.
- More buyers arrive; the pool now holds $500,000 of their ETH.
- The creator removes the pool's liquidity or sells their hoard in a few transactions. The price drops 95–100% in minutes.
- The website and social accounts vanish. Buyers are left holding tokens no one will buy.
Warning signs to check
- Anonymous team and no track record (not proof of a scam, but no accountability either).
- Concentrated supply: a few wallets hold most of the tokens. Check the holders tab on a block explorer.
- Unlocked liquidity: the trading pool isn't locked or burned, so it can be withdrawn.
- Owner powers: the contract owner can mint, pause or blacklist.
- Can't sell, or huge sell taxes: test with a tiny amount, and be suspicious if others can't sell.
- Pressure and promises: guaranteed gains, countdowns and "don't miss out."
None of these checks is a guarantee. Even locked liquidity can expire, and audits miss things.
If you've been rugged
- Stop sending money. Ignore anyone who offers to recover your funds for a fee; "recovery services" are a second scam aimed at victims.
- Save transaction IDs, addresses and screenshots.
- Report it to the FBI at ic3.gov and the FTC at reportfraud.ftc.gov, and to the exchange where you bought, if any.
- Losses from theft or fraud may affect your taxes; see crypto taxes.
Frequently asked questions
Are rug pulls illegal?
Taking investors' money under false pretenses is fraud. Prosecutions happen, but anonymous creators are often never found, and the money is rarely recovered.
Can you get money back from a rug pull?
Rarely. Report it anyway, and beware of anyone charging fees to "recover" it.
What does it mean if liquidity is locked?
The trading pool's funds are held in a contract that prevents withdrawal until a set date. It lowers one risk, but locks expire and other rug methods remain.
Where do rug pulls happen most?
With new tokens on decentralized exchanges, especially memecoins on fast, cheap networks.
Is a rug pull the same as a Ponzi scheme?
No. A Ponzi pays old investors with new investors' money over time; a rug pull is a sudden exit. Both are fraud.
Where to next
Sources
- What to know about cryptocurrency and scams (FTC)
- Staff Statement on Meme Coins (SEC, 2025)
- Internet Crime Complaint Center (FBI)
Written for beginners and checked against the sources listed. Last reviewed November 4, 2026. This page is educational and is not financial, tax or legal advice. How we write and check pages.