Key Points

  • A rug pull is when the people behind a token or project take investors' money and leave, usually by pulling the liquidity or selling a large hidden supply.
  • A honeypot is a token whose code lets you buy but blocks you from selling, so the price chart only goes up while buyers are trapped.
  • Most rug pulls happen with new, low market cap tokens on decentralised exchanges, where anyone can launch a token in minutes.
  • Many warning signs can be checked before you buy: who controls the contract, whether liquidity is locked, how concentrated the holders are, and whether selling actually works.
  • Free token scanners help, but they miss things. Treat a clean scan as one check, not a clearance.

Quick Answer

A rug pull is a scam where a project's creators drain the money investors put in, usually by removing the token's trading liquidity or dumping a supply they kept for themselves. A honeypot is a token coded so buyers cannot sell. Read any new token by asking who can change the contract, who can remove the liquidity and who holds the supply. The common misread is that a rising price and an active community prove a token is safe. In a honeypot, the chart only rises because nobody is able to sell.

What is a rug pull?

A rug pull is when the people behind a crypto project take the money that buyers put in and disappear. The name comes from pulling the rug out from under investors.

It is most common with new tokens on decentralised exchanges. Launching a token and a trading pool takes minutes and costs little, so there is no gatekeeper checking who is behind it. Our wider guide to crypto scams covers the other schemes that target investors.

What types of rug pull are there?

  • Liquidity pulls. The creators provide the trading pool that lets people buy and sell the token, then withdraw it. With no liquidity left, the token cannot be sold at any useful price.
  • Dumps. The team or insiders hold a large share of the supply, often spread across several wallets, and sell it into buyers once the price has been pushed up.
  • Hidden minting. The contract lets the owner create new tokens at will, which they then sell, diluting everyone else.
  • Slow rugs. A project raises money, then gradually winds down development while insiders sell over weeks or months. It looks like a failing project rather than theft, which makes it harder to prove.

What is a honeypot token?

A honeypot is a token whose smart contract allows buying but blocks or penalises selling. The block may be a list of wallets allowed to sell, a sell tax close to 100%, or a function the owner can switch on after launch.

Because buyers cannot sell, the price chart shows only green candles and the token can look like the strongest performer on the market. One of the best-known examples was the Squid Game token in late 2021, which rose sharply while holders were unable to sell, then collapsed when the creators cashed out.

What are the warning signs before you buy?

  • The contract can still be changed. If the owner can mint tokens, change taxes, pause trading or block wallets, they can turn a normal token into a trap at any time.
  • Liquidity is not locked. If the liquidity pool tokens are not locked for a meaningful period, or burned, the creators can remove the pool.
  • A few wallets hold most of the supply. Check the top holders on a block explorer. A large share in a handful of new wallets is a risk.
  • High or changeable buy and sell taxes. Taxes above a few per cent, or ones the owner can raise, are a common honeypot tool.
  • An anonymous team with no track record, combined with heavy paid promotion and promises of quick multiples.
  • Nobody seems to sell. If the transaction list shows buys but almost no sells, test whether selling works before you put more in.

How can you check a token yourself?

  1. Find the contract address from the project's official channels and confirm it matches the one you are trading.
  2. Look it up on a block explorer such as Etherscan, Basescan or Solscan. Check whether the source code is verified, who the owner is and what functions the owner can call.
  3. Run it through a token scanner. Free tools such as Honeypot.is, GoPlus and, for Solana, RugCheck flag common traps like blocked selling, high taxes and mint functions.
  4. Check the liquidity. See how much is in the pool, whether it is locked and for how long.
  5. Check the holders. Look at how much of the supply sits in the top wallets, including the creator's.
  6. Test with a small amount. If you still want to buy, buy a small amount and try to sell part of it before committing more.

Scanners only check for known patterns. New tricks appear regularly, so a clean result is one check among several. Our research checklist and due diligence guide cover the wider checks.

What should you do if you are caught in a rug pull?

  • Revoke approvals you gave to the token or its website, so it cannot take anything else from your wallet. Our guide to token approvals explains how.
  • Record the evidence: the contract address, your transactions, the website and social accounts.
  • Report it. In the US, report to the FBI at ic3.gov. In England, Wales and Northern Ireland, report to Report Fraud at reportfraud.police.uk. In Scotland, contact Police Scotland on 101.
  • Ignore anyone offering to recover the money for a fee. Recovery offers after a rug pull are very likely to be a second scam.

Losses on capital you put into a scam token may have tax consequences. In the UK and the US, the rules on claiming losses are specific, so check your tax authority's guidance or ask an adviser.

Frequently Asked Questions

Are rug pulls illegal?

Taking investors' money under false pretences is fraud in most countries. Prosecution is difficult when the creators are anonymous and overseas, but cases do happen.

Can a token with locked liquidity still be a rug pull?

Yes. Locked liquidity blocks one method, but the team can still dump a large supply, mint new tokens or use a honeypot function. It reduces one risk, not all of them.

Does renouncing ownership make a token safe?

It removes the owner's ability to change the contract, which closes off several traps. It does not prevent large holders from selling or prove the token has any value.

Are rug pulls only a problem with meme coins?

They are most common with new meme tokens, but DeFi projects, NFT collections and presales have also been rugged.

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Further Reading

Sources

  • FBI Internet Crime Complaint Center, reporting and annual reports: ic3.gov
  • City of London Police, Report Fraud: reportfraud.police.uk

This article is for education only and is not financial, investment or legal advice. Crypto assets are volatile and you can lose some or all of the money you put in. New and low market cap tokens carry a high risk of total loss, and no scanner or checklist identifies every scam. Do your own research and consider independent advice before making any financial decision.