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What is a rug pull?
A rug pull is when the people behind a crypto project suddenly take the money out and leave. A common form: the creators withdraw the funds backing a token's trading pool, or sell their own large holdings, so the price collapses and other holders are left with tokens that can barely be sold.
What it means for you
A claim that a project's liquidity is "locked" is only a claim until you can see the lock on chain; in one SEC case the tokens said to be locked were not. Check who controls the liquidity-pool tokens and how much of the supply a few wallets hold. Funds taken in a rug pull move on chain and are rarely recovered.
A common mistake: “The liquidity is locked, so the developers cannot rug.”
In fact: A lock covers only the LP tokens actually placed in it, for as long as it runs. In one SEC case tokens described as locked were held by one person who withdrew them. Creators can also sell their own large holdings without touching the lock.
How it works
A new token usually trades in a pool that pairs it with another asset, and whoever deposited that pairing holds LP tokens that let them withdraw it. "Locked liquidity" means those LP tokens sit in a contract that cannot release them until a set date. If the creator keeps the LP tokens, they can pull the paired asset out and sell their own supply into what is left, and the price drops sharply. In one SEC case a hired engineer kept LP tokens that had been described to buyers as locked, then withdrew them. Scam tokens often run on tiny pools, so even modest selling moves the price a lot.
Sources: SEC: Litigation release LR-26223 (Game Coin rug pull), ethereum.org: How to identify scam tokens · checked 4 October 2026
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