Rug Pull Guide: Spotting and Avoiding Crypto Scams
A rug pull occurs when crypto developers abandon a project and withdraw all liquidity, leaving investors with worthless tokens. This guide explains the different types of rug pulls, details the common warning signs, and provides a clear action plan for creators who want to launch legitimately and build trust. Using a platform with built-in safeguards is the most effective way to prevent these scams from the start.
Key Points
- 1A rug pull is a scam where developers drain liquidity and abandon a token, causing its value to crash to zero.
- 2The five main types are: Liquidity Pulls, Soft Rugs, Honeypots, Slow Rugs, and Developer Dumps.
- 3Red flags include anonymous teams, excessive token ownership, and locked liquidity with short timers.
- 4For creators, using a launchpad like Spawned with a 1% perpetual post-graduation fee creates a long-term incentive against pulling liquidity.
- 5Always verify contracts, check team transparency, and use platforms that align developer rewards with project success.
What is a Crypto Rug Pull?
The foundational scam that erodes trust in crypto.
In simple terms, a rug pull is a type of exit scam in the cryptocurrency space. The developers of a token project suddenly withdraw all the funds from the liquidity pool, making it impossible for other investors to sell their tokens. This causes the token's price to plummet to near zero, 'pulling the rug' out from under investors.
While often associated with memecoins, rug pulls can happen with any token project where the developers control the underlying liquidity or smart contract. The scam relies on generating hype and attracting investment before the developers vanish with the funds. For a more foundational look, read our Rug Pull Definition.
The 5 Main Types of Rug Pulls
Understanding the specific mechanics helps you identify the threat. Here are the five most common types:
- Liquidity Pull: The classic scam. Developers remove all the paired tokens (like SOL or ETH) from the liquidity pool, destroying the token's ability to be traded. This is often done by renouncing ownership of the liquidity pool contract.
- Soft Rug / Sell-Off: Developers don't drain liquidity but instead sell their massive pre-allocated token holdings on the open market, crashing the price. They may hold 30-50%+ of the supply at launch.
- Honeypot: A malicious smart contract is deployed that prevents sells. Investors can buy but cannot sell, trapping their funds while the developers can withdraw at any time.
- Slow Rug / Fee Scam: Developers set a high transaction tax (e.g., 10-20%) and over time withdraw the accumulated tax revenue, slowly draining value from the project without an immediate crash.
- Developer Dump & Abandon: After an initial pump, developers sell their holdings and simply stop promoting the project, abandoning all social channels and letting it die.
How to Spot a Potential Rug Pull: 7 Red Flags
Vigilance is your best defense. Look for these warning signs.
Before investing in any new token, especially on decentralized exchanges, perform these checks. For newcomers, our Rug Pull Guide for Beginners breaks this down further.
How Launchpads Can Prevent Rug Pulls: A Comparison
Not all launch environments are created equal.
The platform you choose to launch or invest through makes a significant difference. Here’s how a structured launchpad compares to a direct, unaudited launch:
For Creators: The Secure Path Forward
Building trust starts with your launch platform choice.
If you're a legitimate creator looking to build a lasting community and token project, choosing a launchpad with embedded economic safeguards is the most effective way to signal trust and prevent your project from being mistaken for a scam.
The Recommendation: Launch via a platform like Spawned that uses the Token-2022 program to embed a small, perpetual fee (1% post-graduation). This structure fundamentally changes the incentive. Instead of a one-time pump-and-dump, your revenue is tied to the lasting volume and success of the token. It proves to your community that you are invested in the project's future. This model, combined with the included AI website builder (saving $29-99/month on external tools), provides a legitimate foundation for growth. Explore the Benefits of a structured launch for creators.
Action Plan: How to Protect Yourself
Follow this checklist before committing funds to any new token project:
Launch with Confidence on Spawned
For creators who are serious about building a legitimate project, the choice of launchpad is your first and most important statement of intent. Spawned is designed to align creator success with holder success through sustainable tokenomics.
- Creator Revenue: Earn 0.30% on every trade, creating an ongoing reward.
- Holder Rewards: 0.30% of every trade is distributed to token holders, building a loyal community.
- Post-Graduation Security: The 1% perpetual fee model via Token-2022 ensures your incentives are long-term.
- AI Website Builder: Launch with a professional site included, saving on monthly costs.
Start your project on a foundation of trust. Learn more about launching on Spawned.
Related Terms
Frequently Asked Questions
Almost never. Because crypto transactions are irreversible and most rug pulls happen on decentralized platforms with no central authority, recovering lost funds is extremely difficult. Law enforcement may pursue criminal charges if the perpetrators are identified, but individual recovery is rare. Prevention through due diligence is the only reliable strategy.
A rug pull is a specific type of scam. While a 'scam' is a broad term for any fraudulent scheme, a 'rug pull' specifically refers to the act of developers removing liquidity or abandoning a project after attracting investment, causing a sudden collapse. All rug pulls are scams, but not all crypto scams are rug pulls (e.g., phishing attacks, fake wallets).
Yes, rug pulls are illegal in most jurisdictions as they constitute fraud and theft. Regulatory bodies like the SEC and DOJ have pursued charges against perpetrators for securities fraud and wire fraud. However, enforcement is challenging due to the anonymous and cross-border nature of many crypto projects.
They have been prevalent, especially during memecoin frenzies. The low transaction costs and ease of deploying tokens on Solana make it an attractive network for both legitimate creators and scammers. Hundreds of new tokens are created daily, and a significant percentage are suspected to be potential rug pulls or 'pump and dumps.' This highlights the need for investor caution and the value of platforms with safeguards.
'Liquidity locked' means the funds in the trading pair (e.g., YOURTOKEN/SOL) have been placed in a time-locked smart contract, preventing the developers from withdrawing them for a set period. It is a strong anti-rug measure, but not foolproof. You must verify the lock timer (a 30-day lock is a red flag), and ensure the locked liquidity is substantial relative to the market cap. It also doesn't prevent a 'soft rug' via developer token sell-off.
Beyond the included AI website builder, a launchpad like Spawned provides economic credibility. The 0.30% creator fee and 0.30% holder reward create immediate, transparent incentives. Most importantly, the 1% perpetual fee structure post-graduation signals a long-term commitment. It demonstrates to potential investors that the creator's revenue is tied to the token's sustained trading volume, not a one-time exit, which significantly builds trust and differentiates the project from potential scams.
Yes, in several ways. If the lock period is short (e.g., one week), the developers can pull liquidity immediately after it expires. A 'soft rug' via massive token selling is still possible regardless of liquidity locks. Also, some fake 'locks' can be malicious contracts controlled by the developers. Always verify the lock using a trusted third-party service and check the unlock date.
Explore more terms in our glossary
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