What Is a Rug Pull in Crypto? Signs and Examples

A rug pull is a crypto scam in which a project's creators suddenly drain its funds or liquidity and disappear, leaving holders with a token that is worthless or impossible to sell. The name comes from "pulling the rug out" from under investors, and it is most common with new tokens launched on DEXs.

Rug pull definition

In a rug pull, the people who control a project use that control to take investors' money. The project may have looked legitimate for days or months, with a website, social channels and a rising price, before the exit.

Rug pulls are usually grouped into two types. A hard rug pull is built into the code or the setup from day one: hidden mint functions, a contract that blocks selling, or liquidity the team can withdraw at will. A soft rug pull happens without malicious code: the team dumps its own large token allocation, abandons development, or slowly bleeds the treasury. Hard rugs are generally treated as outright fraud; soft rugs can be harder to prove.

How a rug pull works

The most common pattern on a DEX looks like this:

1. Launch a token and pair it with a valuable asset such as ETH or a stablecoin in a liquidity pool.
2. Create hype with influencers, fake partnerships, airdrops or a trending theme, so buyers push the price up.
3. Keep control of an escape hatch. This can be unlocked LP tokens, an owner-only mint function, a sell tax the owner can raise to 100%, or a blacklist that stops ordinary holders from selling.
4. Exit. The team removes the paired liquidity, or mints and sells a huge number of new tokens into the pool, draining the valuable side.
5. Disappear. Websites and channels go offline; the token's price goes to near zero because there is nothing left to swap it for.

A well-documented case is the 2021 "Squid Game" token (SQUID). Its contract stopped ordinary holders from selling, so the price climbed to over $2,800 per token within days. On 1 November 2021 the developers drained an estimated $3.38 million from the liquidity pool and the price collapsed to almost zero (Wikipedia, accessed October 2026).

Rug pull example

Say a hypothetical token, TKN, launches in a pool with 50 ETH and 1,000,000 TKN. Buyers pile in over a week until the pool holds 300 ETH and 166,667 TKN, a price of about 0.0018 ETH per TKN.

The team never locked its LP tokens. It withdraws the entire position and walks away with all 300 ETH. The pool is now empty. A holder who bought 10,000 TKN for roughly 15 ETH on the way up has no market to sell into: the token still sits in their wallet, but it can no longer be swapped for anything. Their loss is the full 15 ETH.

If instead the team had kept an owner mint, it could have minted 10 million new TKN and sold them into the pool. The arithmetic is the same: the ETH side drains to near zero and existing holders are left with dust.

Why rug pulls matter

Rug pulls are one of the most common ways DeFi users lose money, and they are hard to reverse because funds move on-chain and teams are often anonymous. Warning signs worth checking before you buy:

• Liquidity is not locked or is locked only for a short time.
• The contract has owner powers such as minting, pausing transfers, changing taxes or blacklisting.
• Token supply is concentrated in a few wallets, especially team wallets without vesting.
• No audit, or an audit from an unknown firm, and unverified contract source code.
• Anonymous team plus urgency: countdowns, "last chance" messaging and promised returns.
• You cannot sell a small test amount. If a tiny sell fails, it is likely a honeypot.

Our checklist on how to check a DeFi protocol is safe turns these into concrete steps. Rug pulls also overlap with other scams: many fake token sites exist to get you to sign malicious approvals, covered in our guide to wallet drainers and approval phishing.

Related terms

• DYOR — do your own research, the first defence against rug pulls.
• Liquidity pool — the pool that a rug pull drains.
• Tokenomics — supply and allocation details that reveal rug risk.
• Cliff vesting — a lock on team tokens that makes a soft rug harder.
• Multisig wallet — a wallet needing several signers, which limits one person's ability to drain funds.

Learn more on the JewelSwap blog

• Crypto scams in 2026 — the most common scam types this year and how they target users.
• How to check a DeFi protocol is safe — a step-by-step due-diligence checklist before you deposit.
• Wallet drainers and approval phishing — how malicious signatures empty wallets and how to revoke approvals.

Frequently asked questions

What does rug pull mean in crypto?

It means the people behind a token or protocol take the investors' funds, usually by withdrawing liquidity or minting and dumping tokens, and then abandon the project.

Rug pull vs exit scam: what is the difference?

A rug pull is a type of exit scam. "Exit scam" is the broader term for any operator who collects money and vanishes; "rug pull" usually refers to the DeFi version, where a liquidity pool or token contract is the mechanism.

Is a rug pull illegal?

Hard rug pulls involving deception or malicious code are generally treated as fraud in many jurisdictions. Soft rug pulls, such as a team quietly dumping tokens, can fall into grey areas depending on what was promised.

JewelSwap Crypto Glossary · educational, not financial advice. Updated 2 October 2026. Browse the full glossary.