A rug pull is a type of cryptocurrency scam where the developers of a project suddenly abandon it after collecting investors' funds. The term comes from the expression "pulling the rug out from under someone."
Types of Rug Pulls
Liquidity Pull: Developers remove all liquidity from a DEX trading pool, making the token untradeable and worthless.
Hard Rug: Malicious code in the smart contract allows the developer to drain funds, prevent selling, or mint unlimited tokens.
Soft Rug: The team slowly dumps their tokens on the market, gradually depreciating the price while maintaining an appearance of legitimacy.
Warning Signs
Anonymous teams with no track record, unlocked liquidity, unaudited contracts, unrealistic promises of returns, aggressive marketing with no substance, and tokens where selling is restricted are all red flags.
Protection
Check if liquidity is locked, review the smart contract (or check audit reports), verify the team's identities, and never invest more than you can afford to lose.