Understanding Rug Pulls
How scams happen in crypto and how to avoid being the next victim
Crypto moves fast. Prices pump, hype spreads and opportunities appear out of nowhere. But in this same environment, scams grow just as quickly. One of the most damaging scams for beginners is the rug pull.
This article explains what rug pulls are, how they happen, real examples like the LIBRA token, why people fall for them and how you can protect yourself.
What Is a Rug Pull?
A rug pull is a type of crypto scam where the creators of a project build hype, attract investors, then suddenly disappear with the money. The token collapses to near zero, leaving everyone else holding worthless assets.
The name comes from the feeling of having the rug pulled out from under you.
Everything looks normal until the moment it isn’t.
Rug pulls are common in DeFi because anyone can launch a token on a decentralized exchange like Uniswap or PancakeSwap. There is no screening process and no regulator checking whether a project is real or not.
How Rug Pulls Work
Most rug pulls follow the same pattern:
1. Launch and hype
Scammers create a token with a catchy name, meme appeal or false promises. They promote it heavily on X, Telegram, TikTok and through influencers to build excitement.
2. Liquidity added
The token is listed on a DEX with some initial liquidity.
Liquidity is simply the pool of money that allows people to buy and sell the token. If the creators can remove this pool, the token becomes untradeable and collapses instantly.
3. Retail buys in
People jump in during the hype, driving the price up. This is where FOMO takes over.
4. The rug pull
Once the price peaks and enough money is in the pool, the scammers drain the liquidity or dump their entire holdings. The token crashes 90 to 100 percent in seconds.
5. They vanish
Websites deleted, social media gone, team silent.
Investors are left with nothing.
Some rug pulls happen slowly over days (soft rugs). Others happen instantly (hard rugs).
Real Examples of Rug Pulls
LIBRA Token Rug Pull
The Solana-based LIBRA token exploded in early 2025 after being hyped as connected to Argentine President Javier Milei and influencer Hayden Davies. Milei’s tweet triggered a massive buying frenzy.
Within minutes, insiders dumped their holdings and drained liquidity. The price collapsed from almost $5 to near zero, with over $100M erased.
Milei denied involvement, but the damage was done. Thousands of retail investors were rugged.
Celebrity Meme Coins (Kanye West, Caitlyn Jenner, Iggy Azalea and more)
A wave of celebrity-themed tokens surged in 2024–2025. Many were unofficial coins using celebrity names for hype.
They pumped rapidly, then insiders dumped everything. Most investors assumed the celebrities were involved, when in reality the tokens were run by opportunistic marketers and pump groups.
The formula is always the same: hype, FOMO, price pump, collapse.
Who Coordinates Rug Pulls?
Rug pulls are usually organized by:
anonymous developers
meme coin creators
paid influencers
Telegram pump groups
small insider teams controlling most of the token supply
These groups plan the token launch, liquidity setup and coordinated exits in advance.
Why Retail Falls for Rug Pulls
Rug pulls work because they exploit human emotion:
FOMO: Fear of missing the next big coin.
Hype: Viral posts, celebrity names, big promises.
Low cost illusion: “It’s cheap so it might 100x.”
Trust in authority: Believing celebrities or political figures are involved.
Lack of experience: Not understanding liquidity or token supply control.
Scammers rely on people reacting emotionally instead of logically.
How to Protect Yourself From Rug Pulls
Here are simple ways to stay safe:
1. Check liquidity locks
If liquidity is not locked, the team can remove it instantly.
2. Don’t trust anonymous teams
Anonymous founders launching new tokens is a major red flag.
3. Avoid celebrity coins
Most celebrity tokens are pump and dumps using a famous name as bait.
4. Look at token distribution
If insiders hold most of the supply, they can crash the price at any time.
5. Ignore unrealistic promises
“Guaranteed returns” and “1000x incoming” signals a scam.
6. Trust your instincts
If something feels off, stay away.
TLDR
A rug pull is when developers drain liquidity or dump their tokens, causing the price to crash to zero and abandoning the project. Retail falls for these scams because of hype, FOMO and lack of understanding of liquidity.
Stay safe by checking liquidity locks, avoiding anonymous teams and being extremely cautious with celebrity-linked projects.
Not Financial Advice