// GLOSSARY -- DEFI

What is Rug Pull?

1 min read Updated

A rug pull is a crypto scam where project creators abandon a project and steal user funds — typically by draining liquidity pools, exploiting admin functions, or selling large token allocations.

WHY IT MATTERS

Rug pulls are crypto's most common scam. The playbook: create a token, add liquidity to a DEX, hype the project, wait for others to buy in, then drain the liquidity pool and disappear. Permissionless token creation makes this trivially easy.

Variants include: hard rugs (draining liquidity or exploiting backdoor functions), soft rugs (slowly selling team tokens while maintaining a facade), and honeypots (contracts that let you buy but not sell).

Red flags: anonymous team, no audit, locked functions in the contract, concentrated token holdings, and unrealistic promises. Due diligence on contract code, token distribution, and team credibility is essential.

FREQUENTLY ASKED QUESTIONS

How to spot a rug pull?
Check: Is the team doxxed? Is the contract audited and verified? Is liquidity locked? Are token holdings concentrated? Are admin functions restricted? Use tools like Token Sniffer and RugDoc.
Can rugs happen with audited projects?
Rare but possible. Audits check code at a point in time — upgradeable contracts can change after audit. Proxy patterns and admin keys create ongoing risk even with audited code.
Are rug pulls illegal?
In most jurisdictions, yes — it's fraud. But enforcement is challenging with anonymous teams and cross-border transactions. Prevention (due diligence) is more effective than legal recourse.

FURTHER READING

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