What is a rug pull in crypto?
In one line: A rug pull is a crypto scam where the people behind a token or project suddenly take investors' money and vanish, leaving the token near worthless.
What it means
Picture standing on a rug. Someone yanks it. You fall.
In crypto, a rug pull happens when the team behind a new token pulls the money out. Buyers are left with a token that can't be sold for much, or at all.
How it works
There are a few common versions:
- Draining the pool. New tokens are often traded in a pool of coins on a decentralized exchange. That pool is the token's Liquidity. The creators withdraw it. Now there's nothing to sell into.
- Dumping. The team holds a huge share of the supply and sells it all at once.
- Code traps. The token's code quietly blocks buyers from selling. Only the creators can.
Is it illegal?
Taking investors' money under false pretenses is fraud. US prosecutors have charged people behind rug pulls with fraud and money laundering. When a token is sold as an investment, securities laws may apply too. The SEC's site Investor.gov has crypto fraud alerts.
Warning signs
- Anonymous team with no track record.
- Brand-new token with sky-high promised returns.
- A few wallets hold most of the supply.
- Liquidity not locked, so the team can remove it any time.
- You can buy but can't find anyone who has sold. A sign of code that blocks selling.
- Hype and urgency: "presale ends tonight", celebrity-style shout-outs, endless rockets.
If the only reason to buy is that the price is going up, ask who you'd sell to later.
A simple example
A new token launches with a fun name. Its chat explodes. The price climbs 20 times in a week.
One night, the creators remove the pool of coins backing the token. The price drops over 90% in minutes. The website goes dark. The chat is deleted. This describes the common pattern, not one real case.
A well-known example is the "Squid Game" token in 2021, which crashed to almost zero after its creators cashed out.
How to protect yourself
- Stick to well-known coins and regulated US exchanges while you learn. See crypto trading for beginners.
- Never put in more than a small amount you can afford to lose entirely.
- Treat "guaranteed" returns as a red flag.
- Report suspected fraud to the SEC through sec.gov.
Questions
Is a rug pull illegal?
Taking investors' money through deception is fraud, and US prosecutors have brought criminal charges in rug pull cases.
How do you tell if a crypto token is a rug pull?
Check for an anonymous team, a few wallets holding most of the supply, unlocked liquidity, and whether anyone has actually been able to sell.
Can you get money back after a rug pull?
It's rare. Funds are often moved quickly. Reporting it to authorities helps, but recovery isn't likely, so prevention matters most.
Want the next step? We'll walk you through it.
Four free lessons by email, one every few days — each with a 10-minute exercise on a real chart.
Send Me the Free Lessons 4 short emails · No spam · Unsubscribe anytimeOr see the whole method, step by step:
See What’s Inside the Course Try everything free first. Decide when you're ready. · Open the free chart tool (works in the TradingView phone app)One chart idea a day, in plain English. Follow along: