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Rug Pull

A scam where a project's creators abandon the project and run away with users' funds.

A rug pull is a type of exit scam common in DeFi and token launches.
It happens when a project's team (or whoever controls the liquidity) suddenly removes liquidity or withdraws funds, making the token worthless and leaving holders with losses.

Rug pulls range from simple scams (team withdraws liquidity) to more elaborate schemes (fake audited contracts, impersonation, or malicious smart contract functions).

Why it matters

  • Rug pulls can wipe out all value in a token within minutes.
  • They are common in low-cap projects, anonymous teams, and unaudited launches.
  • Understanding rug pulls helps you avoid high-risk tokens and protect your capital.

How to spot (red flags)

  • Anonymous or unverified team with no track record.
  • Liquidity is controlled by a single wallet or has no lock.
  • Token contract includes admin functions that allow minting, blacklisting, or draining funds.
  • Huge token supply allocated to team/unknown wallets with no vesting.
  • Too-good-to-be-true promises (guaranteed returns, unrealistic APYs).
  • No reputable audits or only low-quality audits from unknown firms.

How to protect yourself

  1. Check the liquidity pool — is liquidity locked (via a timelock) or can it be withdrawn instantly?
  2. Inspect the token contract (Etherscan/BscScan): look for mint, burnFrom, renounceOwnership, or transferOwnership patterns and see who controls them.
  3. Verify team identity and social proof (LinkedIn, Github, community history).
  4. Prefer projects with gradual vesting for team tokens and transparent tokenomics.
  5. Use smaller position sizes and test buys before committing — never invest more than you can afford to lose.

Common mistakes

  • Buying immediately at launch without checking liquidity controls.
  • Trusting paid influencers without verifying the project.
  • Assuming an audit guarantees safety — audits help but are not a 100% protection.

Quick example

A new token launches on a DEX. The devs provide initial liquidity, attract buyers, then call a function that withdraws the liquidity pair — price collapses, and the dev wallet exits with the ETH/BNB collected.

💡 Lanzo Tip: Before buying, open the token contract on a block explorer and search for ownership/administration functions. If you can’t understand what you see, treat the token as high-risk and keep your position tiny.