Key Takeaways
Quick answer
A rug pull is a crypto scam in which the people behind a project attract investors’ money, then abruptly pull out the funds or trading liquidity. The US Treasury describes a scammer raising money in a seemingly legitimate project before ending it and stealing the funds.
- A rug pull is a scam where a project's creators raise money and then take it.
- Draining a DEX liquidity pool can cause heavy losses for token holders, as alleged in an SEC case.
- Recovery is often impossible, and people offering to get the money back may be scammers too.
What happens in a rug pull?
The US Department of the Treasury’s 2023 DeFi risk assessment gives the definition: “In a ‘rug pull,’ a scammer raises investment funds in a seemingly legitimate project before ending the project and stealing invested funds.” In DeFi this can mean launching a new token with a trading pool on a DEX, attracting buyers, then draining what they paid in, as alleged in the SEC case below.
How does pulling liquidity hurt token holders?
In January 2025 the SEC announced a case over a token called Game Coin (GME). Its complaint alleged that, without safeguards, “The holders of LP tokens can, without warning, withdraw liquidity from a liquidity pool, sell significant amounts of crypto assets into the pool and cause losses to investors.” Without admitting or denying the allegations, the defendant agreed to pay $672,992 in disgorgement and interest plus a $150,000 penalty.
Illustrative: you hold 1,000 tokens bought at $0.50. If the price falls 95% after the pool is drained, they are worth 1,000 × $0.50 × 0.05 = $25.
What warning signs point to a possible rug pull?
- Promises of guaranteed high returns, which the CFTC and SEC list as a red flag.
- Pressure to act fast, another red flag the two regulators name.
- Hype around meme tokens: the SEC warns that fraudsters run pump-and-dump schemes with so-called memecoins.
- Pool tokens controlled by one unlocked address, the set-up alleged in the SEC case.
Anyone can deploy a smart contract, so a token existing proves nothing. The full checklist is on our crypto scam red flags page.
Frequently asked questions
Can I get my money back after a rug pull?
Often not. The CFTC cautions that money lost to fraud may not be recoverable, and NIST notes that blockchain transfers generally cannot be undone. Be wary of anyone offering to recover it for a fee; see recovery scams.
Is every token crash a rug pull?
No. Crypto prices can fall sharply for many reasons. A rug pull specifically involves insiders taking investors’ funds or liquidity.
Article Sources
7 sources
Blockhorizon checks every figure, date and quotation against primary sources: regulators, statistics bodies and original technical documents. Read our editorial policy.
- US Department of the Treasury, Illicit Finance Risk Assessment of Decentralized Finance (Apr 2023) — home.treasury.gov (accessed 2026-10-02)
- SEC, Litigation Release No. 26223, SEC v. Eric Zhu (Jan 2025) — sec.gov (accessed 2026-10-02)
- SEC Investor.gov, 5 Ways Fraudsters May Lure Victims Into Scams Involving Crypto Asset Securities (May 2024) — investor.gov (accessed 2026-10-02)
- CFTC & SEC, Investor Alert: Watch Out for Fraudulent Digital Asset and “Crypto” Trading Websites (2019) — cftc.gov (accessed 2026-10-02)
- CFTC, Customer Advisory: Use Caution When Buying Digital Coins or Tokens — cftc.gov (accessed 2026-10-02)
- NIST IR 8202, Blockchain Technology Overview (2018) — nvlpubs.nist.gov (accessed 2026-10-02)
- UK Financial Conduct Authority, Recovery room scams — fca.org.uk (accessed 2026-10-02)