Cryptocurrency rug pulls are an unfortunate but common occurrence in the global crypto markets, resulting in billions of dollars of losses for digital asset investors.

Read on to learn what crypto rug pulls are, how they work, and how you can identify and avoid them.

This is partner content sourced from Laura Shin’s Unchained and published by CoinDesk.

A rug pull is a type of exit scam that involves a team raising money from investors and the public by selling a token only to quietly shut down the project or suddenly disappear, stealing the raised funds and leaving “investors” (i.e., their victims) with worthless tokens.

Rug pulls can be extensively orchestrated, with nefarious actors leveraging social media influencers and hype-generating campaigns to lure as many victims as possible.

Some scams even use trusted key opinion leaders in the social space to gain trust. Others promise extremely high yields or offer exclusive digital goods, as seen in NFT rug pulls.

Crypto rug pulls can also occur when the project’s owners manipulate the value of a particular token or coin to deceive investors and subsequently siphon off their investments.

Fraudsters often attract victims with a sudden, sharp increase in the token’s value in a short period. Once the price peaks, the people behind the token sell it to generate a profit while leaving “investors” with steep losses.

Rug pulls often occur on decentralized trading platforms, enabling the fraudster to benefit from the pseudonymity of DEXes.

Rug pulls can generally be categorized into hard and soft rug pulls.

Hard rug pulls are more acute and sudden. Investors can lose all their funds within a short time. Soft rug pulls happen over a longer period. The core development team gives investors a false sense of security while they quietly shut down.

Common types of rug pulls include:

Identifying and avoiding rug pulls requires a combination of diligence and caution. Here’s how you can protect yourself:

Finally, always ensure you only invest money you can afford to lose. Many cryptocurrency projects are experimental, and sometimes the failure of an idea can lead to the team doing a soft rug pull, which means they quietly stop supporting the project.

While crypto rug pulls have always been a spectacle in the industry, some scams left a mark in the industry.

Here’s a look at five of history’s biggest crypto rug pulls.

OneCoin was a cryptocurrency-based Ponzi scheme promoted as a new digital currency that would revolutionize the financial world. The scheme was run by Ruja Ignatova, who claimed that OneCoin was backed by a team of experts and had a vast network of distributors.

However, OneCoin was never actually backed by anything, and the distributors were simply paid to recruit new investors. When the scheme eventually collapsed, investors lost over $4 billion.

Thodex was a Turkish cryptocurrency exchange that was hacked in 2021. The hacker stole over $2 billion worth of cryptocurrency from Thodex users, and the exchange’s founder, Faruk Özer, then disappeared. Özer was later arrested in Albania in 2022.

AnubisDAO was a DeFi project launched in 2021. The project promised high returns to investors, but it was a rug pull. The developers drained the project’s liquidity pool and disappeared, leaving investors with nothing.

Uranium Finance was a DeFi project that promised to provide investors with exposure to uranium mining, but it was yet another rug pull. The developers of Uranium Finance drained the project’s liquidity pool and vanished, leaving token holders with heavy losses.

Squid Game Token was a scam cryptocurrency created in 2021, inspired by the popular Netflix series “Squid Game.” However, the token was a rug pull. The developers disabled the token’s ability to be sold, and then disappeared with investors’ money.

Crypto rug pulls remain a significant threat in the crypto space, preying on unsuspecting investors and causing substantial financial losses.

By understanding the various types of rug pulls, learning how to identify early warning signs, and implementing best practices for investing, you can significantly reduce your risk of falling victim to these malicious schemes.