Rug pull
Rug pull (or rug; holders are said to be rugged) is a crypto exit scam in which a token's creators or insiders remove its liquidity or sell their holdings into buyers and abandon it, leaving the token near worthless.[1][2]
How it works[edit]
Liquidity removal
On an automated market maker the creator often supplies the initial pool. Solidus Labs measured a "liquidity sweep" in which the deployer provides all pool liquidity, waits for buyers to add SOL, then withdraws at least 90% of it; it found the pattern in about 361,000 of 388,000 Raydium pools examined (93%), with a median take of about $2,832 and a maximum of $1.9 million.[2]
Selling into buyers
On pump.fun creators supply no liquidity and the pool's LP tokens are burned when a coin graduates, so liquidity cannot be withdrawn.[3] Value is instead extracted by selling; Solidus attributed pump.fun's figures partly to its Bonding curve, which favours creators and early buyers over late ones.[2] Insider supply is often spread across many wallets through Bundling or Sniping.
Token authorities
A Solana SPL token can retain a mint authority, which can create new supply, and a freeze authority, which can lock holders' token accounts; Helius notes a retained freeze authority can be used to make a honeypot in which buyers cannot sell.[4]
History[edit]
Cernera et al. studied Ethereum and BNB Smart Chain from inception to March 2022 and estimated that "1-day rug pulls", tokens created and abandoned within a day, earned $240 million; about 60% of tokens were active for under a day.[1] SQUID, a BNB Chain token themed on Netflix's Squid Game with no link to the show, rallied as much as 75,000% to above $2,850 before falling 99.99% on 1 November 2021; its developers said they had left the project.[5] In March 2022 US prosecutors charged the creators of the Frosties NFT project with wire-fraud and money-laundering conspiracy over about $1.1 million raised and abandoned.[6]
On Solana, Solidus Labs reported in May 2025 that about 98.6% of pump.fun tokens launched from January 2024 to March 2025 fell below $1,000 in liquidity, which it treated as effectively worthless.[2] In February 2025 Bubblemaps linked the creator of Libra to the team behind Melania Meme.[7]
Regulation[edit]
The SEC's Division of Corporation Finance said on 27 February 2025 that meme coins of the type it described are not securities, while noting that fraud involving them may still be pursued by other federal or state agencies.[8] The Frosties case was brought as criminal fraud.[6]
Timeline[edit]
- 2021-11-01: SQUID collapses 99.99%[5]
- 2022-03-24: US prosecutors charge the Frosties NFT creators[6]
- 2025-02-27: SEC staff statement on meme coins[8]
- 2025-05: Solidus Labs publishes its Solana rug pull report[2]
See also[edit]
References[edit]
- ^ Token Spammers, Rug Pulls, and SniperBots: An Analysis of the Ecosystem of Tokens in Ethereum and in the Binance Smart Chain (BNB), arXiv (USENIX Security 2023), 2022-06-16
- ^ The 2025 Rug Pull Report: Rug Pulls and Pump-and-Dumps on Solana, Solidus Labs, 2025-05
- ^ Pump program README, pump.fun (GitHub), n.d.
- ^ Explore authorities, Helius, n.d.
- ^ Squid Game Token Crashes; Developers Say They've Left the Project, CoinDesk, 2021-11-01
- ^ DOJ unveils charges amid investigation into Frosties NFT 'rug pull', The Block, 2022-03-24
- ^ Bubblemaps links single entity to Libra and Melania memecoins, The Block, 2025-02
- ^ Staff Statement on Meme Coins, US SEC Division of Corporation Finance, 2025-02-27