If you want to find out what a crypto rug pull is and who performed the most notable rug pull in history, you’ve come to the right place. In this guide, we’ll explain how these schemes work, whether they are legal, and what the main types of rug pulls are. We’ll also explain how to avoid rug pulls to keep your crypto investments safe.

Let’s get to work.

Learn in This Article

  • Crypto rug pull definition
  • How does it work
  • Types of rug pulls
  • Are crypto rug pulls illegal
  • How to avoid them

What Is a Crypto Rug Pull?

What is a rug pull in crypto? Rug pull is a term used to describe a scam in which a particular digital coin or NFT is hyped to increase its value. These schemes aim to make money on fake cryptocurrencies and projects. Namely, after people invest in the projects, they will suddenly disappear, as well as the funds invested in them.

Rug pulls became more frequent after the launch of top DeFi projects since they attract more prominent investors.

That said, OneCoin is the most notable rug-pull crypto example. OneCoin was a Ponzi scheme through which its founder, Ruja Ignatova, managed to steal more than $4 billion from investors. OneCoin promised a considerable ROI to attract a large number of investors. However, it turned out to be a rug pull, and Ruja Ignatova was never caught.

How Does a Rug Pull Work?

Rug pull scams usually work in the following way:

  • Creating a fake digital coin: Scammers will start their fraud by creating fake cryptocurrencies or NFTs. These projects will also implement all the features of real digital assets — they’ll have a white paper, a roadmap, and a website.
  • Creating hype: After creating a new coin, scammers will aggressively advertise it to attract as many investors as possible. After people start investing in the coin, its value will start going up.
  • Disappearance: When the fake project generates enough capital, scammers will withdraw all funds from its reserves or liquidity pools. They will also erase all traces that point to the existence of their project — the project will disappear, as well as its founders.

Types of Rug Pulls in Crypto

Rug pulls can be hard and soft. The former refers to the intentional injection of malicious code into a project’s smart contracts to steal funds from investors. Once they succeed in their intention, the scammers will disappear, leaving behind worthless tokens.

The latter is more subtle. Namely, scammers will hype their tokens with false promises to raise their value. After the price of rug pull coins goes up, they will take them out of the liquidity pool.

With that in mind, there are three types of rug pulls:

  • Dumping: Dumping is a type of rug pull scheme in which schemers pump up the prices of cryptocurrencies by aggressively advertising them. They will sell them after their price goes up, leaving investors with worthless tokens. This is also called the Pump-and-Dump Scheme.
  • Limiting sell orders: In this type, schemers create special codes that allow only them to sell their tokens. Once investors buy these currency-paired tokens, schemers will dump them. 
  • Liquidity stealing: This is the most common type of rug pull scheme within the DeFi ecosystem. It refers to the withdrawal of tokens from liquidity pools, making them worthless.

Are Crypto Rug Pulls Illegal?

Although rug pulls are unethical, they are not necessarily illegal. While hard rug pulls are unlawful, the same is not the case with soft rug pulls. For example, the Pump-and-Dump scheme is in the gray area since anyone can advertise and sell their cryptocurrencies. 

Moreover, cryptocurrencies still need to be fully regulated, leaving much room for manipulation. What’s more, many scammers operate from countries where there are no crypto fraud laws.

Because of this, many countries have taken protective measures. For instance, in the US, the SEC can file charges against companies involved in crypto schemes, like rug pulls.

However, since crypto transactions are irreversible and anonymous, it may be challenging to trace them back to their source.

How Can You Avoid Rug Pull in Crypto?

Detecting crypto rug pulls can be very challenging. Yet, there are several things you can do to avoid them.

Who Is Advertising the Projects?

When a new crypto project comes out, its developers will advertise it on social media. Your task is to check how they advertise them — do they have a large community behind them, and do well-known crypto YouTubers promote them?

Keep in mind that legitimate crypto projects won’t be sponsored. If you notice that a particular project is advertised by people who have nothing to do with cryptocurrencies, avoid it. It’s probably a rug pull.

Read the Whitepaper

All crypto projects have whitepapers and roadmaps describing their purpose and use cases. Avoid investing in projects with short whitepapers filled with unnecessary information. The same rule applies if their whitepaper looks like a sales pitch.

Check Their Liquidity Pools

If the project has low liquidity, for example, $100,0000, this could be a sign that it’s a rug pull. Namely, it’s easier to manipulate projects with low liquidity. The second thing you must do is check if the projects have locked liquidity. 

On that note, if project developers lock their tokens within liquidity pools, there is less chance of fraud. Why? Because it will be complicated to perform a rug pull in this case.

Who Holds the Majority of Tokens?

The last thing you have to do is check who holds most of the tokens. If crypto whales hold more than 20% of tokens, there is a high possibility that it’s a Pump-and-Dump scheme. Namely, if crypto whales start selling their tokens, their value will drop and vice versa.


Now that we know what a crypto rug pull is, it’s clear why investors should be wary of it. Rug pulls are frequent in the world of cryptocurrencies, which is why you have to be very careful when investing in new projects. The most common types of rug pulls include dumping, limiting sell orders, and liquidity stealing.

However, you can protect yourself from these schemes by doing in-depth research. On that note, pay attention to the way they are advertised. If the project sounds too good to be true — it probably is. You should also check its development team, white paper, and token allocation.


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