Rug pull

Every rug pull needs a lever that one party can pull, and new tokens ship with several. Chainalysis counted 2.8 billion dollars taken this way during 2021, which was 37 percent of all cryptocurrency scam revenue that year against 1 percent the year before. Bitcoin has no such lever: no founder allocation, no mint function, and no pool of liquidity anyone can withdraw.

How it works

A rug pull is an abuse of powers the creator kept, and those powers are visible in the contract before anyone buys.

Liquidity removal. Most new tokens trade against a pool on an automated market maker, funded by the deployer, who receives pool tokens representing that deposit. Whoever holds the pool tokens can withdraw the pool. When they do, the other side of every trade disappears and the price goes to zero in one block. A "locked liquidity" claim is only as good as the lock contract and its expiry date.

Unlimited minting. If the contract keeps an owner-only mint function, the supply figure on the listing page is a suggestion. The owner prints, sells into the existing buyers, and the chart does the rest. The ERC-20 standard says nothing about who may mint; that is left entirely to whoever wrote the contract.

Sell restrictions, sometimes called a honeypot. The transfer function contains a condition that lets purchases through and blocks disposals, or applies a punitive tax to selling. Buyers see a rising price and cannot act on it. The chart is real; the exit is not.

The soft version. No single dramatic transaction, just the team quietly selling its allocation over weeks and then abandoning the project. The outcome for holders is identical and the prosecution is much harder.

Prosecutors have started treating the deliberate version as ordinary fraud. In March 2022 the US Attorney's Office in Manhattan charged two men over the "Frosties" NFT project, which took roughly 1.1 million dollars from buyers before its creators shut the website and abandoned it, and charged them with wire fraud and money laundering rather than anything crypto-specific.

An audit does not fix this. Auditors read code for defects; they cannot read intent, and a deployer exercising a legitimate admin key is not exploiting a bug.

Where you see it

Bitcoin holders meet rug pulls at the edges of their own ecosystem rather than on the base layer.

The recurring settings are BRC-20 and Runes launches during a mint frenzy, "bitcoin yield" tokens on other chains, wrapped bitcoin knockoffs with an unnamed custodian, and presales advertised in the replies under popular bitcoin posts. The pitch usually borrows bitcoin's credibility while offering something bitcoin structurally cannot: a return, an insider allocation, an early entry.

Four questions filter most of it. Who holds the supply, and on how many addresses? Can more be minted, and by whom? Is the liquidity locked, by which contract, and until when? Can the deployer pause or tax transfers? If the answers are not public and verifiable, the honest description of the position is a bet on a stranger's restraint.

The comparison worth making is with what you already hold. Bitcoin's issuance schedule was fixed in the software before the first block on January 3, 2009, no address holds an admin key, and there is no pool to pull. That is not a claim about price. It is a claim about which failure modes exist.

Rug pull vs shitcoin

A shitcoin is a low quality asset that may simply fail; a rug pull is a deliberate extraction with an identifiable perpetrator. The distinction is legal rather than emotional. A worthless token whose team tried honestly and ran out of money leaves nobody to charge, and holders bear an investment loss. A rug pull leaves a defendant, a set of on-chain transfers showing exactly when the liquidity moved, and in the cases above an indictment. Both go to zero, but only one of them is a crime.