Crypto Rug Pulls: How to Spot & Avoid Investment Disasters

I started investing in crypto in 2019, and since then, I’ve faced and experienced numerous cryptocurrency rug pulls.

I’m sharing my knowledge and experience regarding cryptocurrency rug pulls so that others can avoid making the same mistake.

If you read through this entire article, I can assure you that you’ll be able to detect a rug pull when you see one, before falling victim to it.

What Is A Rug Pull?

A rug pull in the crypto space refers to deliberately crashing a coin, token, or NFT for the benefit of the perpetrator, leaving investors with worthless assets.

It often happens in newly created cryptocurrency projects.

Examples include dumping a significant portion of the total supply without notice or preventing investors from selling their tokens.

Types Of Rug Pulls In The Cryptocurrency Market

Generally, there are two types of rug pull commonly known in the cryptocurrency market:

• Soft Rug Pull
• Hard Rug Pull

However, we can further categorize and address two more types of rug pulls that seem to happen in the crypto space:

• Coin/Token Rug Pull
• NFT Rug Pull

Rug pulls are a common occurrence in the cryptocurrency market, and they can take various forms. Here, we’ll explore different types of rug pulls categorized based on their characteristics.

• Supply Rug Pull: The rug puller manipulates the supply of the coin/token/NFT, either by creating more assets and dumping them on investors or by selling off existing assets.

• Liquidity Rug Pull: The rug puller fails to lock the liquidity of the coin/token, making it non-tradable after investors buy it. Sometimes, the rug puller creates a fake liquidity lock.

• Smart Contract Rug Pull: The rug puller creates a smart contract that can be edited later. After making the coin/token/NFT tradable, the rug puller changes the code, preventing investors from selling or transferring the assets.

• Hype Rug Pull: The rug puller generates fake hype in the community and crypto space to attract investors. They talk about the benefits of holding the assets but keep delaying actions until investors lose interest.

• Trendy Rug Pull: The rug puller capitalizes on a trendy topic or meme to create a token. Investors jump in due to the trend, but the rug puller has nothing substantial to deliver.

• Quick Rich Scheme Rug Pull: The rug puller offers unrealistic features and guaranteed riches, which are unsustainable. For example, promising a 10000000% APY.

• Airdrop Rug Pull: The rug puller airdrops scam tokens to DeFi wallets. When recipients try to trade these tokens, they lose money due to high fees or draining smart contracts.

• Tax Rug Pull: The rug puller imposes a high tax for trading the coin, claiming it’s for marketing and development. However, they keep the tax for themselves.

RugPull Categories Based on Coin Launch:

• Stealth Launch Rug Pull
• Presale Rug Pull
• Private Sale Rug Pull
• Seed Sale Rug Pull
• Pre-seed Sale Rug Pull

RugPull Categories Based on Marketing:

• Paid Advertising Rug Pull
• Free Advertising Rug Pull
• KOL Channel Rug Pull

Difference Between Soft Rug Pull & Hard Rug Pull

Soft Rug Pull: A soft rug pull gradually causes investors to lose money, often through false promises and declining interest.

Example: Robert launches memecoin ‘Robo’, raises $10,000 for marketing, then becomes inactive. Eventually, the token loses value, and Robert keeps the funds.

Soft rug pull is also known as ‘slow rug pull’.

Hard Rug Pull: A hard rug pull rapidly causes investors to lose money, usually when the project creator sells a large portion of tokens.

Example: Robert sells 50% of tokens during presale, then dumps the rest when the token goes live, causing a significant price crash.

Hard rug pull is also known as ‘fast rug pull’.

How Long Does A Rug Pull Last?

Soft Rug Pull: Typically one day to indefinitely.

Hard Rug Pull: Usually resolved within a day, occasionally lasting a few days.

Difference Between Coin Rug Pull & NFT Rug Pull

A rug pull occurs when the creator modifies the smart contract and supply of a cryptocurrency or NFT collection.

In the case of a coin rug pull, this manipulation is done to the token smart contract, liquidity, and token supply, while an NFT rug pull involves altering the NFT smart contract and NFT supply.

Example: Robert initially issued 1 million coins for his cryptocurrency and sold them to investors. However, after the coin was launched on the open market, he minted more coins without notice and sold them. This action constitutes a coin rug pull. Similarly, Robert created an NFT collection, initially issuing 100 NFTs and selling them. Later, he added another 100 NFTs to the collection and listed them at a lower price than the current floor price, constituting an NFT rug pull.

Detect Rug Pull In Advance

Detecting a potential rug pull in advance is feasible, based on common patterns observed in past incidents. Key indicators include:

• Incomplete or anonymous project teams
• Low-quality or absent websites
• Sole reliance on paid promotion
• Use of automatically generated contract addresses
• Changeable contract functions
• Lack of transparency, including hidden owner addresses
• Short-term vision and reluctance to share past projects
• Muting community members to suppress concerns
• Inability to collaborate with reputable figures or projects
• Defamatory behavior toward others

Identifying these warning signs can help investors avoid falling victim to rug pulls in the cryptocurrency space.

Crypto Tools To Detect Rug Pulls

Blockchain offers various tools to detect rug pulls, although they may not always be 100% accurate due to the complexity of the technology. Here are some worth mentioning:

• Honeypot: Detects rug pulls specifically for Binance Smart Chain (BSC) contract addresses by analyzing common smart contract malfunctions.

• Honeypot for Ethereum: Similar to the above but for Ethereum contract addresses.

• BubbleMaps: Checks holders and transfers of a coin/token across multiple blockchains, helping to identify suspicious wallet connections.

• Maestro Bot: Includes features to detect rug pulls in advance, particularly useful on Telegram for warning against potentially risky coin purchases.

• QuillCheck by QuillAudits: Provides scores based on various rug pull factors and offers contract audits for Ethereum, BSC, and Polygon blockchains.

• DeFi Scanner: Known for its user-friendly interface and detailed reports, offering fast and reliable audits for detecting rug pulls.

• iToken Ethereum: Offers insights and basic info on newly deployed contracts, helping users identify previous rug pullers and their connections.

• SafeAnalyzerBot on Telegram: A bot that helps analyze smart contracts across multiple blockchains, providing essential information and links for quick assessments.

While these tools are helpful, it’s important to note that they may not guarantee 100% accuracy in detecting rug pulls.

Users should exercise caution and conduct thorough research before making any investment decisions.

Manual Way To Detect Rug Pull

While automated rug detector tools offer initial warnings, detecting a rug pull requires thorough analysis. Here’s how to detect a rug pull manually:

• Team Analysis: Research the team’s background, previous projects, location, doxxing status, KYC verification, number of core team members, and administrative compensation.

• Website Analysis: Check for website originality, developer information, and domain/hosting duration.

• Smart Contract Analysis: Analyze smart contracts for proxies and malfunctions, either through audits or coding expertise, as they reflect the intentions of rug pullers.

• Allocation and Vesting Analysis: Ensure fair and secure allocation and vesting schedules for marketing, development, team, liquidity, and other aspects.

• Blockchain Network Analysis: Consider rug pull frequency on popular blockchains versus less established ones, as the ease of smart contract creation varies.

• Liquidity Analysis: Confirm that liquidity is locked for an adequate period and on a secure platform, as insufficient liquidity and short lock periods are warning signs.

• Exchange Analysis: Prioritize listings on reputable exchanges, as they are less likely to list rug pull projects compared to lower-tier exchanges.

Best Method To Detect & Avoid Crypto Rug Pulls

Be cautious with cryptocurrency investments due to market volatility and lack of government regulation. To avoid rug pulls:

1. Avoid memecoins/shitcoins and trendy coins.
2. Diversify your portfolio.
3. Avoid projects with anonymous teams.
4. Look for smart contracts audited by reputable companies.
5. Beware of projects where top holders control most of the supply.
6. Use rug pull detection tools and do thorough research.
7. Invest only what you can afford to lose and use trusted launchpads.
8. Avoid coins with low liquidity, fake hype, or unsellable tokens.
9. Verify online presence, including websites and social media.
10. Avoid projects with fake promises or get-rich-quick schemes and unregulated launchpads.

Are Scam And Rug Pull The Same thing?

For a quick answer: Though scam and rug pull usually involve individuals with bad intentions deceiving others for financial gain, they are not the same thing.

Scam:

A scam is a broader concept than a rug pull.

A scam can involve a combination of dishonesty and breaking promises for one’s own benefit.

Example: Robert and Steve are brothers. Robert promised to give Steve half of their father’s property, but he scammed Steve and took all the property in his name.

Rugpull:

The term ‘rug pull‘ is often used in the world of cryptocurrency and NFTs.

Example: The owner of DogeBond token sold 30% of the total supply and raised $300,000 during the presale. Then, after the public listing on the exchange, the owner immediately sold the remaining 70% of the tokens and dumped them on investors.

Does A Rug Pull Happen Outside Of Crypto?

Rug pulls, similar to those in the crypto world, also happen in traditional finance.

Small and medium-sized enterprises sometimes abandon projects or fail to deliver on promises made during fundraising, leaving investors at a loss.

Who Does The Rug Pull?

Typically, it’s individuals seeking to exploit open markets and unregulated crypto spaces.

Rug pulls occur globally, with instances reported from various countries including the USA, France, Nigeria, India, and more.

Why Do People Rug Pull?

Quick-profit schemes often lead to rug pulls, where project owners lacking vision or unable to fulfill promises exit abruptly.

Easy access to smart contract tools enables anyone to create and manage tokens, facilitating rug pulls.

How Do I Know If I Got Rugged?

Signs of a potential rug pull include unsellable assets, a community filled with fear, uncertainty, and doubt (FUD), and a silent team.

Additionally, if the token’s price consistently drops, promises remain unfulfilled, fake marketing materials are used, or marketing funds are transferred to personal wallets without notice, it could be a rug pull.

Unnatural supply increases of NFTs, repeated delays in progress updates, and vague excuses from the team like ‘soon‘ or being busy without specific details are also warning signs.

Biggest NFT Rug Pull

I’ve experienced numerous NFT rug pulls, including three collections: teddy bear NFTs, baby boss NFTs, and Apollo Bearz, which rug pulled around 80,000 Ethereum.

Despite promises of extensive use cases, the team blamed market conditions after selling out, remaining active for about 2 years post-rug pull.

Collaborations and social media marketing were used to attract investors, but hope and interest dwindled over time.

In Which Season Do Rug Pulls Happen The Most?

There’s no specific season when rug pulls happen most frequently. Rug pulls occur during both bear and bull markets for different reasons.

During bear markets, when crypto prices are generally declining, rug pullers take advantage of the pessimistic sentiment. They exploit low trading volumes and rug investors before blaming market conditions for project failures.

In contrast, during bull markets, when crypto prices are rising, rug pullers capitalize on the euphoria. They target trending topics or create new coins to ride the wave of optimism.

While trading volumes are higher during bull markets, the overall number of rug pulls may be lower due to the broader market success. Conversely, rug pulls may be more prevalent during bear markets despite lower trading volumes.

In Which Platform Does Rug Pull Happen The Most?

Rug pulls predominantly occur in decentralized markets within the unregulated crypto space. Platforms like Pinksale and DxSales, GemPad, Pancakeswap, Uniswap lacking full government or third-party regulation, are particularly prone to rug pulls.

Despite efforts to prevent them through measures like badges, KYC, audits, and vesting, rug pulls persist.

They manifest as soft rug pulls on platforms such as Pinksale and DxSales, while hard rug pulls typically occur outside of marketplaces, often in stealth or private sales conducted through personal launchpads or websites.

Does A Rug Pull Mean I’ve Lost 100% Of My Investment?

A rug pull can result in the complete loss of investment due to liquidity or smart contract issues. In other cases, such as a supply rug pull, investors may face a significant price drop, nearing total loss.

Does The Government Take Any Action Against Rug Pull?

The government typically advises investors to adhere to regulations when investing. However, given the scope of other priorities, they may not directly intervene in instances of rug pulls, which often occur in decentralized and unregulated crypto markets.

Biggest Rug Pull In Cryptocurrency History

A significant rug pull worth around 7 million US dollars recently shook the cryptocurrency community.

The perpetrator utilized paid advertising methods to execute the scheme. Such occurrences are not uncommon, particularly within the memecoin and NFT sectors.

How Do You Know If A Coin Is A Rug Pull?

I analyze the contract address and wallet associated with it, tracing the source of the first transaction fee deposit.

By examining past transactions and connections to known rug pulls, I identify suspicious patterns.

This approach has successfully predicted several rug pulls.

If no clues are found in the explorer, I investigate the project’s social media presence, looking for links to previous rug pulls.

Searching social media platforms with the project’s username can yield insights, but exploring all platforms is recommended.

Sometimes, the communication style of the team or owner can also raise red flags for potential rug pulls.

Can A Coin Recover From Rug Pull?

While it’s rare, coins can recover from rug pulls. Typically, investors move on after discovering one, but recovery is possible with influential support unless it’s a honeypot or the smart contract is flawed.

How Long Does It Take For A Crypto To Recover From A Rug Pull?

The time for a crypto to recover from a rug pull varies. While some rebound in a few days, others may take months, influenced by factors like market conditions, community engagement, and project scale.

However, many never recover, as investors move on to new opportunities.

Are Bitcoin And Ethereum Rug Pull?

Bitcoin, the first cryptocurrency, is widely regarded as the safest in the market, utilized by major companies for transactions and investment.

Its creator remains anonymous, and much of its supply is held by whales. While it exhibits some traits associated with rug pulls, it hasn’t experienced one yet.

Ethereum, the pioneer of smart contracts, is spearheaded by Vitalik Buterin and boasts a significant portion of its supply being staked.

It’s considered a secure investment with no signs of a rug pull, although circumstances can change. Some experts speculate that Ethereum’s versatility may eventually surpass that of Bitcoin.

I’ve Lost Money In A Rug Pull. Can I Recover?

Recovering funds can be challenging. While I once managed to recover 25% of my investment, reaching out to the rug puller directly may help, but be cautious of potential scams.

Avoid connecting your main wallet to unknown dapps to mitigate further risks.

Is Rug Pulling Legal?

Rug pulling is illegal. If a rug puller undergoes KYC and their identity is revealed, hosting platforms may disclose it, potentially leading to legal action from investors.

Examples Of Rug Pulls In Crypto