A rug pull is an exit scam. A team launches a token, attracts buyers, then removes the value that backs it or sells a huge hidden stash, and the price collapses. Buyers are left holding tokens nobody will pay for.
The common forms
- Liquidity pull: the creator adds the token and a small amount of a major asset to a trading pool, then withdraws that asset. Without it, nobody can sell for a fair price.
- Dump by insiders: a few wallets hold most of the supply and sell into the buying you created.
- Hidden mint: the contract lets the owner create new tokens at will, which dilutes everyone else to near zero.
- Trading restrictions: the contract lets people buy but blocks or heavily taxes selling. This is covered in the honeypot article.
Checks worth doing before you buy
- Liquidity: is it locked or burned, and for how long? A lock that expires next week protects nobody. Also look at how much there is. A pool of a few thousand dollars can be emptied by one wallet.
- Holders: open the holder list. If the top few non-pool wallets hold a large share, a single sale can crash the price.
- Contract permissions: check whether ownership was renounced and whether the owner can mint, pause trading, change taxes or blacklist wallets.
- Age and history: a token that is minutes old has no track record. A team that ran earlier failed projects is a warning.
- Social proof you can verify: fake volume and bot followers are cheap. Look for real conversation and a team you can identify.
If you suspect one
Do not buy more to average down. If the contract has given you an allowance, revoke it. Report the token to the venue or tracker where you found it so others see the warning.