How to Spot a Rug Pull Before You Lose Your Money

Rug Pull: A Short Definition

A rug pull is a scam in which a project's creators abruptly drain all liquidity or dump their own token holdings, crashing the price and leaving investors with nothing: more in our glossary.

Why It's Still a Massive Problem

Rug pulls remain the most expensive type of fraud in retail crypto: according to CoinLaw, investors lost roughly $500 million to them in 2025 alone, with the average amount stolen per scheme rising to around $510,000. Anonymous developers are behind nearly all of them — in 92% of 2025 cases, the creators' identity was never confirmed, and up to 60% of new meme coins get flagged as likely rug pulls within their first 30 days.

7 Warning Signs You're Looking at a Future Rug Pull

• An unverified or unaudited smart contract — hiding the code lets a developer quietly add emergency minting, pausing, or wallet-blacklisting functions.
• Liquidity that isn't locked, or is locked for under 30 days — meaning the developer can technically pull it at any moment.
• Top 10 holders controlling more than 40% of supply — a handful of wallets can orchestrate a mass sell-off on their own.
• A honeypot: the contract allows buying but blocks or heavily taxes selling, so you physically can't exit the position.
• Suspiciously uniform trading volume — identical trade sizes with perfect timing usually signal artificial volume, not organic interest.
• Synchronized promotion from multiple influencers at once — it manufactures the appearance of organic hype right before a dump.
• An anonymous team with no verifiable track record — if the creators can't be found, they have nothing reputational to lose, notes DEXTools' checklist.

Squid Game Token: A Textbook Example

In October 2021, the Squid Game (SQUID) meme coin, named after the hit TV show, surged more than 23,000,000% in a week, peaking at $2,861 per token on November 1, 2021. A hidden function in the contract blocked almost all holders from selling. That same day, the developers drained roughly $3.38 million in liquidity and vanished along with the project's website — the price collapsed to zero within minutes, Wikipedia records.

What to Do When You're Not Sure

Check the contract code through a block explorer and look up its audit status, verify the liquidity lock through a locking service, and before a large purchase, sell a small test amount first — if the sell fails or gets taxed at an extreme rate, that's a honeypot. Social media hype alone, without these checks, isn't a good enough reason to put money in.

Nothing here should be taken as financial advice — just information to consider.