Rug Pull

A rug pull (literally, "pulling the rug out") is a common type of scam in the world of cryptocurrencies, particularly within DeFi projects (those based on decentralized finance systems). 

This scheme occurs when developers launch a token, attract investors to drive up its value, and then abruptly withdraw all funds, leaving the project—and its investors—empty-handed. When scammers drain the liquidity pools, the token’s price plummets to zero, and investors are left unable to trade their worthless tokens for stable assets or fiat currency.

• Liquidity Theft: Developers lure victims into investing in their tokens or project, often-generating hype through social media. Once they have enough funds, they vanish, leaving behind valueless tokens and an empty liquidity pool.

• Fake Investors: Scammers create a seemingly promising project that appears to have many backers. However, the developers themselves control these wallets. After inflating the token’s price and gaining the trust of new investors, they sell off their holdings all at once, causing the asset’s value to crash. While not technically illegal, these projects are built with the intent to deceive.

• Project Manipulation: Using technical expertise, developers can block investors from selling their tokens without disclosing this in advance. After artificially inflating the token’s price, they dump their holdings, draining liquidity and disappearing with investor funds.

While some projects raise clear red flags—such as unrealistic promises of massive returns—others are much more subtle. Many rug pull frauds have been disguised as legitimate, solid investment opportunities, making them difficult to identify, even for seasoned investors.

According to Chainalysis, rug pull swindles are a relatively new form of crypto crime but have grown significantly in recent years. In 2021 alone, they accounted for an estimated $2.8 billion stolen from victims, representing 37% of all funds lost to crypto-related scams.

This type of fraud is particularly prevalent in the DeFi space due to its ease of execution. With sufficient technical expertise, these scams are cheap and straightforward to pull off. Developers can simply create tokens and list them on decentralized exchanges, bypassing the need for code audits or other measures that might verify the project's legitimacy.

Thodex: Thodex, a Turkish cryptocurrency exchange founded in 2017, abruptly vanished in April 2021, taking over $2 million of investors' funds along with it. Faruk Fatih Özer, its CEO and founder, initially claimed the halt in operations was due to cyberattacks, promising that user funds were safe—before disappearing entirely.

Following the incident, Turkish authorities launched an extensive investigation, arresting dozens of Thodex employees, seizing company computers, and charging Özer with fraud and forming a criminal organization. Interpol issued a Red Notice, mobilizing global law enforcement to locate and detain him. Özer was eventually arrested in Vlorë, Albania, in September 2022.

According to blockchain analytics firm Chainalysis, Thodex was responsible for around 90% of the total value lost in rug pulls during 2021. Turkish prosecutors are now seeking sentences of 40,564 years for Özer and other parties involved, as over 2,000 victims have come forward as plaintiffs in this massive fraud case.

AnubisDAO: This dog-themed coin project raised an impressive $60 million in ETH (13,597 ETH) from investors in exchange for its native ANKH tokens. But within just 24 hours, the funds were transferred to a different address and vanished without a trace.

With no liquidity left for trading, the rug pull sent the ANKH token price plummeting to zero.

AnubisDAO had branded itself as a fork of OlympusDAO, a decentralized reserve currency. At launch, it relied on a Discord server, an inactive Twitter account, and offered no website or whitepaper, with developers hiding behind pseudonyms.

Chainalysis, in its 2021 crypto crime report, called AnubisDAO a stark warning to investors, emphasizing the importance of only backing new tokens that have undergone thorough code audits.

Liquidity Pool: A reserve of funds locked in a smart contract, enabling decentralized trading and often targeted in rug pull scams.