Spotting Crypto Scams: How to Identify and Avoid Rug Pulls

Crypto Rug Pull Prevention Tips

You can avoid rug pulls by not falling for the fear of missing out, and looking for red flags in the token’s smart contract with GeckoTerminal, researching unusual spikes in token price, and verifying the team’s legitimacy.

Key Takeaways

• Rug pulls are an exit scam that happens when developers launch a crypto project to attract investor funds, before disappearing with the money, leaving holders with worthless tokens or other digital assets.

• Top warning signs of rug pulls are lack of audits, unlocked liquidity, irregular token allocation, and anonymous teams.

• To protect yourself from rug pulls, always do your own research with tools like GeckoTerminal, which has an inbuilt rug pull checker, and blockchain explorers.

This article was updated in March 2025 by Vera Lim.

Rug pulls are a crypto exit scam, where the team raises funds by selling tokens, before suddenly abandoning the project and disappearing with the raised funds, leaving investors holding worthless tokens or other crypto assets like NFTs.

Understanding Crypto Rug Pulls

In rug pull exit scams, developers create a token and list it on a decentralized exchange. A decentralized change facilitates trading through liquidity pools, where two tokens are locked in a smart contract, which automatically carries out actions when predefined conditions are met. One token could be the rug pull token, while the other is usually a common token like USDT, a stablecoin pegged to the US dollar, or even coins like BNB, BNB chain’s native token. 

The rug pull scammers may opt for any combination of the below to lure investors to their scheme:

• Promise high returns.

• Promise access to exclusive digital products (like NFTs) that will give them an edge. 

• Hire popular personalities to aggressively shill (promote) their token on social media.

• Use coordinated buying to drastically increase value for their tokens. 

All these are designed to inspire the fear of missing out (FOMO) in investors, and as the hype builds, so does the amount of money locked into the project. 

Once the project has accumulated enough capital, the developers will suddenly withdraw all the funds and abandon the project, leaving their victims holding valueless tokens and other assets.

How to Identify a Rug Pull

There are usually warning signs around a rug pull project. These include:

• Unlocked liquidity that lets project owners withdraw assets in the liquidity pool.

• Irregular token distribution, where a large amount of tokens are held by a small number of wallets.

• No audits (for crypto projects).

• Sudden unexplained spikes in token value.

• An anonymous team with no track records. 

1. Unlocked Liquidity: Project Owners Can Withdraw Pool Assets 

Locking liquidity stops project owners from withdrawing any of the assets in the pool. If liquidity is unlocked, the owners can drain it at will. To check whether a pool has locked liquidity, you can use GeckoTerminal. 

Every pool on GeckoTerminal has a panel that shows its GT Score. Under this panel, you’ll be able to see if a pool is liquidity locked. For Solana pools, this is under Liquidity Lock, while for ETH pools, it is under Rugpull Risk. 

2. Irregular Token Allocation

Checking the token allocation on blockchain explorers and GeckoTerminal will help you know who holds the most significant amount of coins and how coins are allocated. 

If a few wallets hold large amounts of the coin supply, dumping the tokens quickly is easy, amplifying the risks of price manipulations and rug pulls. A more distributed token is generally safer as it protects users from short-term drastic price manipulations by a few large holders.

3. Lack of Audits 

Most reputable projects share information like smart contract audits on their website. Smart contract auditors will classify and describe the bugs and issues they discover during the audit, explaining its level of severity and the potential effects it can have on the contract and its users. 

Critical issues, if not addressed by the project team, can have detrimental effects on the project as it means the contract can be exploited by either the project team or external malicious actors.

4. Unusual Spikes in Token Value

Like pumps and dumps, you should be cautious with tokens whose prices rise sharply within a few hours or days, as this might indicate a pump and dump scheme. If you see an asset skyrocket in value, try to find out the drive behind it. 

Most of the time, when a legitimate token’s value suddenly rises, it is likely due to an important new partnership, listing on exchanges, or a significant product announcement – all of which would be widely covered in crypto media. 

5. Anonymous Team With No Track Record

While anonymity is one of the draws of crypto, an anonymous team of unknowns launching a project is a possible red flag, especially if the project hasn’t undergone any smart contract audits. In the case of token launches, you can check GeckoTerminal to see if the creator has any problematic previous launches for Solana tokens.

How to Avoid Rug Pulls

You can avoid rug pulls by:

1. Avoiding projects with extreme hype.

2. Checking for active teams and communities.

3. Using GeckoTerminal to review:

   • Bundled buys

   • Freeze authority

   • Mint authority

   • Liquidity lock

   • Honeypots

   • Reentrancy risks

   • Creator history

1. Review Smart Contracts and Token Details

As mentioned above, most reputable crypto projects would have undergone a smart contract audit to prove their legitimacy. Before investing, read through the audit’s findings and ensure that there are no critical issues left unresolved, as these mean the smart contract governing the project can be exploited.

In the case of tokens like memecoins, which are unlikely to have extensive smart contract audits, you can use GeckoTerminal to check for any red flags around the token as seen in the GT Score including:

• The number of tokens purchased through bundled buys, which may be used to jack up the price of a coin prior to a rug pull.

• Freeze authority, which can block holders from trading the token.

• Mint authority, which allows the contract creator to mint new tokens.

• Liquidity lock, which ensures that the tokens provided to the pool are locked and prevents the creator from withdrawing them.

• Honeypot, where the token may be unsellable due to contract functionality or malicious code.

• Reentrancy risks, where a malicious contract can attempt to withdraw tokens from the pool’s smart contract.

2. Be Careful of FOMO (Fear Of Missing Out) and Unrealistic Promises

If something sounds too good to be true, it likely is. Bad actors often over-hype their project to make investors fear missing out before pulling the rug on them. In this case, you should beware of unrealistic returns and yields, especially when coupled with the pressure to participate quickly or risk losing out on the deal. 

3. Check the Project's Online Presence   

When researching a project, you should engage with the project's social media, especially on Telegram, Twitter, and Discord. Legitimate projects are likely to have an active community, with the team driving and participating in discussions around the project. 

While a website can be faked, legitimate websites are a good resource for important information like a smart contract audit, or the identity of team members, which can then be cross-checked on LinkedIn. 

When it comes to researching the latest news around a project, tokens listed on CoinGecko have the latest news around them at the bottom of the coin page, making it easy to discover whether anything significant has occurred to cause any sudden price changes.

Common Types of Rug Pulls Explained

Rug pulls are split into hard and soft rug pulls.

Hard rug pulls happen when the projects’ developers suddenly disappear completely with all the funds invested in the project. They take down all communication channels ranging from social media to websites.

Soft rug pulls adopt a more gradual exit strategy over a longer time period, maintaining a sense of security even as they shut down the project. The project’s developers may slowly decrease their involvement in the project, reducing communications with the community.

Here are some common types of rug pulls:

1. Liquidity Pulls

Liquidity pulls are hard rug pulls where the scammers remove liquidity from the token’s liquidity pool  – a collection of assets used to facilitate decentralized trading. This causes the token’s value to drop due to a lack of buyers and sellers. 

Squid Game (SQUID) Liquidity Pull

An example of a liquidity pull happened with Squid Game (SQUID), a meme token referencing the hit Netflix series Squid Game. The token was hyped across social media, promising users the chance to win SQUID by playing the game. This is in spite of a vague whitepaper and no project audits.

From October 26 to November 1, SQUID's price gained by almost 23 million percent – from a few cents to $2,861.80. Meanwhile, investors were unable to sell their SQUID as the token’s smart contract (which governs how a project works) only allowed the creators to sell the tokens, and they made off with an estimated $3.38 million from investors. The developers then withdrew all the BNB in the pool. The moment was captured live by the Twitter user @imBagsy.

LMAOOOOOOO pic.twitter.com/L6FlF3XdUV

— Bagsy (@Bagsy) November 1, 2021

2. Pump and Dump

Pump and dump rug pulls involve developers driving up the price of a cryptocurrency to attract investors (the “pump”). They then sell off their holdings at the heightened price, causing the asset’s value to drop (the “dump”), leaving investors with worthless assets. 

Libra Pump and Dump

The LIBRA token is an example of a pump and dump rug pull. Argentine President Javier Milei promoted the LIBRA token on his social media platforms, causing the token value to surge to $5.20 within 50 minutes. The token creators held 70% of the total supply, and they sold these tokens at the peak for about $87 million, causing the token price to fall by 85%. 

3. Fake Project Launches

As seen in the earlier examples, scammers can create fake projects to lure investors. After raising funds, they disappear, leaving investors holding worthless NFTs or tokens.

Evolved Apes: A Game That Never Happened

Evolved Apes was a $2.7 million rug pull built around the promise of developing a game. In the leadup to the rug pull, several of the project’s leaders had disappeared and the project’s announcements seemed suspiciously unprofessional.  

4. Ponzi Schemes

Ponzi schemes promise high returns to early investors using funds from later investors. They also usually involve rewarding investors for referring new users to the platform. At a certain point, users are no longer able to withdraw and the rug has been pulled out from under them. 

OneCoin Ponzi Pyramid Scheme

One famous Ponzi rug pull was OneCoin, which resulted in $4 billion losses for investors. The project sold educational material for crypto trading attached to tokens that could supposedly “mine” OneCoins. 

Users were rewarded for referring new users to OneCoin, but OneCoin didn’t even exist on the blockchain. It was never publicly traded and could only be sold on OneCoin Exchange with strict trading limits.

Are Crypto Rug Pulls Illegal?

Crypto rug pulls are illegal worldwide, and law enforcers would act if they smoked out the offenders in their jurisdictions. It is usually classified as theft or fraud in most jurisdictions, and in the case of pump and dump schemes, they are considered market manipulations 

For example,  in the OneCoin rug pull, global police descended hard on some of the leaders. According to South China Morning Post, Chinese regulators prosecuted 98 people linked with the project and seized $267.5 million in crypto. 

Also, in the Frosties NFT case, the culprits were charged with conspiracy to commit wire fraud and money laundering, in connection with a million-dollar scheme to defraud purchasers of the Frosties NFT. 

However, in spite of these successful prosecutions, many other fraudsters do escape with their ill-gotten gains from exit scams, as in the case of the Squid Game rug pull. After the scammers stole the BNB tokens in the liquidity pool, they used mixers like Tornado Cash to try to obscure their tracks, and at time of writing, the culprits are still at large.

Likewise, LIBRA’s co-creator Hayden Davis is not yet listed as wanted by Interpol, although Argentine president Javier Milei is facing impeachment calls.

Conclusion: Always Double Check Before Investing in Any Tokens

While rug pulls are no longer the most popular crypto scam, you should still be aware of the risks associated with tokens that promise unrealistic returns, especially when coupled with explosive price growth. In this article, we’ve covered some ways you can easily research the legitimacy of tokens and some red flags to watch out for. 

If a project lacks transparency, verified audits, or seems too good to be true, it probably is. 

While this guide outlines the common red flags, scammers are always coming up with new angles to convince investors to part with their capital. Always be skeptical and do your own due diligence before investing in any cryptocurrency, even in the face of social media hype.

Any projects listed in this article is for illustration purposes only. 

FAQs

Can I Recover Funds After a Rug Pull?

Not easily. Crypto transactions are typically irreversible, and the anonymity of crypto can make it difficult to trace. You can file a legal complaint, but recovery is rare.

Is It a Rug Pull When a Prominent Member of a Team Leaves the Project?

No, it’s not. Rug pulls are exit scams that usually involve an aspect of trading limitations that prevents investors from selling their tokens, or rapid selling where the price drops quickly, leaving the token worthless.

What’s the Difference Between a Rug Pull and a Failed Project?

A rug pull is designed as an exit scam, and usually takes place relatively quickly. Crypto projects can fail; in which case, you should be on the lookout for warning signs like a gradual decrease in TVL or token price, or a failure to deliver on promised deliverables.