A "rug pull" is a type of fraud, often in the cryptocurrency or NFT space, where project developers suddenly abandon a project and abscond with investors' funds. This is typically done by first creating hype around a new project to attract investment, then crashing the token's value by selling their own assets, or by simply disappearing and leaving investors with worthless assets.
- How it works: Developers create a new cryptocurrency or NFT project, build hype, and attract investors. They may lock up a large portion of the project's liquidity to make it seem legitimate. Once a substantial amount of capital is invested, the developers abruptly remove the liquidity or all the valuable currency from the project, causing the price to crash to zero.
- The result: The developers disappear with the investors' money, leaving the investors with a worthless asset.
- Alternative name: It is also known as an exit scam, a term that applies more broadly to scams where perpetrators run off with participant funds.