The Anatomy of a Rugpull: How Investors Lose Millions Overnight

“Rugpull” — the nightmare of every crypto investor — describes the moment when developers suddenly drain the liquidity, exploit their smart contract, or abandon a project, leaving the community with worthless tokens.

In this guide, we’ll break down:

What rugpulls are and how they happen,
The 3 main types of rugpulls (with real examples),
And the key warning signs to spot one before it’s too late.

🧩 What Exactly Is a Rugpull?

A rugpull happens when crypto developers pull the rug out from under investors — disappearing with their funds or making the token impossible to sell.

Rugpulls are most common in DeFi, meme coins, and IDO projects, especially on open DEX platforms like Uniswap, PancakeSwap, or SushiSwap, where anyone can create a token.

The common pattern?

Developers build hype → investors buy → price pumps → devs vanish.

🚨 The 3 Major Types of Rugpulls (Explained in Detail)

🧨 1. Liquidity Pull — “The Classic Rug”

What happens:
After investors buy the token, developers remove all liquidity from the trading pool. Since the token has no liquidity left, its price instantly drops to zero.

How they do it:

Devs add an initial liquidity pair (e.g., SQUID/BNB).
After price rises, they withdraw the LP tokens (liquidity provider tokens).
Investors can no longer sell, because there’s no pool left.

Example:

Meerkat Finance (2021) — A DeFi protocol on Binance Smart Chain.

Over $31 million in funds disappeared overnight after the devs drained their vaults, claiming they were “hacked.”

How to detect early:

No liquidity lock (use tools like Unicrypt, TeamFinance).
LP tokens held by a wallet instead of a locker contract.
“Honeypot” symptoms — you can buy but not sell.

🧬 2. Code Exploit — “The Hidden Trap”

What happens:
Developers add malicious code inside the smart contract — allowing them to mint unlimited tokens, block selling, or drain wallets.

Typical hidden functions:

mint() or increaseSupply() → create infinite tokens.
setTaxFee() → suddenly increase trading tax to 100%.
blacklist() or restrictSell() → prevent users from selling.

Example:

Squid Game Token (2021) — investors could buy but not sell because the smart contract blocked sells unless a private wallet address was whitelisted.

Within 5 minutes, the devs drained the pool — stealing roughly $3.3 million in BNB.

How to detect early:

Read contract via BscScan or Etherscan → look for suspicious owner privileges.
Avoid contracts with no verified source code.
Use tools like TokenSniffer or Honeypot.is.

🕳️ 3. Marketing Rug — “The Vanishing Act”

What happens:
Scammers use professional marketing, paid influencers, fake audits, and flashy websites to build trust — then vanish once they raise funds or finish presale.

Common patterns:

Anonymous team, no product, but huge Telegram hype.
Paid YouTube/TikTok influencers promoting “next 100x coin.”
Promise of NFT game, DeFi platform, or “metaverse” with zero delivery.

Example:

DeFi100 (2021) — a supposed yield farming project that disappeared overnight, leaving a message on its website:

“We scammed you guys, and you can’t do s*** about it.”
Losses were estimated at $32 million.

How to detect early:

Google the team names — if nothing appears, walk away.
Check if the “audit” link is real or just a fake PDF.
Unrealistic roadmaps or “guaranteed returns” are 100% red flags.

🔍 Summary: 7 Signs a Rugpull Is Coming

Unlocked liquidity or LP tokens in a private wallet.
Unverified smart contract or unknown developer wallet.
Anonymous team with fake or stolen identities.
No audit or fake “audit badge” on the website.
No sell option or unusually high transaction tax.
Aggressive marketing, FOMO-driven hype, or fake partnerships.
No real product — only promises and token sales.

🧠 Lessons from History

Every rugpull follows the same psychological pattern:

Hype → FOMO → Trust → Exit.

The SQUID Token and DeFi100 events taught investors one crucial rule:
If you can’t verify the people or the product — you’re not investing, you’re gambling.