What is a Rug Pull in Crypto?

By Julia Cook
Published Oct 18, 2022 and updated Nov 8th, 2022

A ‘rug pool’ is a type of cryptocurrency scam whereby the developers attract investors and then figuratively ‘pull the rug out from under them,’ meaning that they will abandon the project and disappear with the proceeds.

A rug pool is a cruel scam that attracts investors by generating a lot of hype around a blockchain project or cryptocurrency. Typically, they will have a whitepaper, a realistic sounding price projection and development plan and possibly some kind of other attraction to the project. While there are inevitably always many projects that will fail, rug pool adversaries have malicious intent from the onset. Typically, because of the nature of blockchain projects, there is often little known about the developers beyond the information that they provide about themselves on their professional profiles. This makes it very difficult to trace them when they do disappear.

The prevalence of rug pulls was one of the main reasons that ICOs became less popular with crypto investors post-2017, and part of the reason why the SEC and NFA  felt the need to involve themselves providing greater regulation over the cryptocurrency industry. Of course, with the SEC they do also simply want their cut of taxes.

Some examples of rug pools include the $WGMI scam whereby the creator of the memecoin withheld the majority of the altcoin, and once enough hype had been generated around the coin, he sold it all and disappeared in November 2021. Another example is the Squid Game blockchain-based game scam, whereby the developers falsified a game design around the TV show concept, and then disappeared once the crowdfunding was complete, also in November 2021.