A rug pull is a cryptocurrency scam where project creators abandon a project after extracting investor funds, typically by removing liquidity from trading pools or exploiting smart contract backdoors, leaving token holders with worthless assets. The term derives from 'pulling the rug out' from under someone. The typical pattern: anonymous developers launch a token with compelling marketing, create social media hype, add initial liquidity to a DEX enabling trading, wait for buyers to drive up price and volume, then execute the exit, either withdrawing all liquidity (causing the price to collapse to zero) or using hidden contract functions to mint unlimited tokens and sell them. Some rug pulls are 'slow', gradual selling that bleeds value rather than dramatic collapse. Warning signs include anonymous teams, unaudited contracts, unlocked liquidity, unrealistic promises, aggressive marketing without substance, and contract functions that allow unlimited minting or blacklisting. Due diligence requires checking if liquidity is time-locked (preventing early withdrawal), reviewing contract code or audit reports, researching team credentials, and being skeptical of guaranteed returns. Rug pulls are most common with memecoins and hastily launched DeFi projects. They've cost investors billions collectively and are a primary reason crypto has reputation problems. Legitimate projects increasingly lock liquidity and publish audits specifically to distinguish themselves from rug pull risks.
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