What is a rug pull?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A rug pull is the team behind a new token walking away with the money or the liquidity backing it. Right up to the moment it happens, the project often looks active and well promoted, so momentum alone tells you nothing. What matters is who the team is, whether the liquidity is locked, and what privileges the contract retains.
Key points
- The team removes the liquidity or funds and disappears
- Projects often look busiest just before it happens
- Check whether the liquidity is locked, and for how long
- Anonymous teams plus retained contract privileges are the danger combination
Definition
The operators of a new project pulling out the liquidity or deposited funds, leaving the token effectively worthless. Sometimes planned from the start, sometimes a decision taken along the way.
On a decentralised exchange, anyone can deposit a token alongside a base asset to create a market; that deposit is the liquidity. If the team withdraws it all at once, there is nobody left to sell into and the price collapses to nothing. From the holder's side, value disappears in minutes.
Besides pulling liquidity, variants include using a retained mint privilege to create a large supply and sell into the market, or simply raising development funds and going silent. The common thread is that the team kept the ability to act unilaterally after money came in.
Three checks help before you buy. Is the team identifiable with work you can trace? Is the liquidity locked by a third-party mechanism, with an end date you can read? Does the contract still hold mint or transfer-freeze privileges? If you cannot answer all three, the sensible move is not to fund it.
Watch out for
- · Verify that liquidity is locked and read the unlock date before buying
- · Do not fund a project whose team is anonymous and whose track record cannot be traced
- · Treat 'limited spots' and 'ends tonight' as devices designed to stop you checking