How to Spot a Crypto Scam: 12 Red Flags
The 12 red flags behind most crypto scams, from guaranteed returns and romance scams to fake exchanges and recovery fraud, and what to do if targeted.
Rug Pulls Explained
How crypto rug pulls work, from drained liquidity to tokens you can’t sell, a famous example, the red flags to check before buying and what to do if you’re hit.
Key takeaways
- A rug pull is when a project’s creators take investors’ money and disappear, or rig the token so holders can’t sell.
- Anonymous teams, hype-driven launches and tokens you can’t test-sell are major warning signs.
- Audits and “locked liquidity” help but don’t guarantee safety.
On this page
A rug pull is a crypto exit scam: the people behind a token or project pull out the money, leaving investors holding something worthless. The name comes from pulling a rug out from under someone’s feet. Rug pulls are common because launching a token takes minutes and needs no permission.
How rug pulls work
| Type | What happens |
|---|---|
| Liquidity pull | Creators remove the funds backing a token’s trading pool, so its price collapses |
| Honeypot | Hidden code lets people buy but blocks or heavily taxes selling |
| Hidden minting | The creators can print unlimited new tokens and sell them |
| Slow rug | Developers quietly sell their large holdings and abandon the project |
| NFT abandonment | A collection raises money on promises, then the team vanishes |
Most rug pulls happen on decentralised exchanges, where anyone can list a token by creating a liquidity pool. Our guide to DeFi explains how those pools work.
A famous example
In 2021, a token named after a hit TV series soared in value after heavy media attention. Buyers soon discovered they couldn’t sell it, a honeypot design. Within days, the creators cashed out, the price collapsed to almost nothing and the project’s website and social accounts disappeared. Many buyers only realised something was wrong when they tried to sell.
Red flags before you buy
- Anonymous or unverifiable team with no track record
- Extreme hype: countdowns, “next 100x” promises, paid influencer posts
- You can’t sell, or sell taxes are unusually high; many victims only test this after buying
- A few wallets hold most of the supply
- Liquidity isn’t locked, or is locked only briefly
- Unverified or unaudited smart contract, or an audit from an unknown firm
- Copycat names borrowing from a famous brand, celebrity or trending story
- Pressure to buy through links in chat groups or direct messages
Many of these warning signs overlap with other schemes; see our 12 red flags of crypto scams. New to terms like “liquidity” and “minting”? Our crypto glossary explains them.
What to do if you’ve been rug pulled
- Stop sending money. Don’t buy more to “average down” or pay any fee to “unlock” your tokens.
- Record everything: token contract address, transaction hashes, wallet addresses, websites and chat messages.
- Revoke token approvals you gave to the project’s contracts.
- Report it to the police and your national fraud reporting service, such as the FBI’s IC3 in the US, and to the exchange or platform involved.
- Beware recovery scams. People who contact you offering to recover funds for a fee are almost always scammers too.
Frequently asked questions
Are rug pulls illegal?
Taking investors’ money under false pretences is fraud in most countries, and some rug-pull creators have been prosecuted. But anonymous creators are hard to trace, and recovering funds is rare.
Can I check whether a token is a honeypot?
Some online tools scan contracts for common honeypot tricks, but they can miss new ones. The safest approach is to avoid newly launched, hyped tokens.
Do rug pulls only happen with small tokens?
They’re most common with new, small tokens, but large projects can also collapse or be abandoned. Scrutinise any project that relies on hype over substance.
Sources
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