NFT and Crypto Scams: Understanding Rug Pulls
Numerous Americans remain doubtful about the reliability of cryptocurrency, with a recent Pew survey indicating that 63% express low confidence in its safety. Despite this skepticism, cryptocurrency has firmly established itself as a significant component of the investment landscape, with its global market capitalization soaring by 36% in 2024. If you’re considering joining the 562 million individuals who own crypto worldwide, it’s crucial to remain aware of potential scams and risks associated with this volatile market. Among the most notorious scams are rug pulls, which will be explored in detail here, along with their implications for the industry and strategies for avoiding them.
Defining a Crypto Rug Pull
Since its rise to prominence in 2018, cryptocurrency has become a favored target for online scammers, who have integrated it into various fraudulent schemes including phishing and identity theft. The allure of crypto for these criminals stems from its inherent difficulties in tracking—lacking a central banking authority to monitor suspicious activities and featuring irreversible transactions. The scale of the issue is alarming, with global losses to crypto scams reaching $2.2 billion in 2024, a 21% increase compared to 2021. While daily scams differ from rug pulls, they share common traits, particularly the anonymity and lack of accountability offered by crypto transactions.
In the case of a rug pull, a person or group attracts investments by promoting a token—essentially the digital representation of assets in the crypto world—often touting the promise of significant returns or exclusive rewards. After gathering a substantial amount of investment, they abruptly abandon the project and vanish, leaving investors with worthless tokens while they profit significantly from the funds raised.
Different Forms of Crypto Rug Pulls
Rug pulls generally follow a similar pattern of amassing assets and then disappearing, but they can manifest in various ways. The most recognizable type involves a team that generates hype around a coin, only to subsequently vanish, leaving investors with worthless tokens. Other rug pulls may center around entirely fabricated projects that fail to materialize before the creators abscond with the funds.
Another method, known as the pump and dump strategy, involves scammers artificially inflating a token’s price through coordinated purchases, followed by a mass sell-off at the peak, which results in a drastic value drop. Liquidity pulls take a more subtle approach, where fraudsters siphon off the liquidity from a token pool, significantly diminishing its value due to dwindling interest from investors.
Rug Pulls in the NFT Sector
For those unfamiliar, NFTs, or non-fungible tokens, represent unique digital assets such as artwork or videos that are secured through blockchain technology. As of 2025, concerns regarding NFT rug pulls are relatively low, with market penetration projected to stabilize at a mere 0.15%. Nevertheless, NFT rug pulls operate differently from standard crypto rug pulls: developers promote a project—often leading investors to believe in its inflated value—until they amass significant funds from sales, only to sell low-value or worthless tokens at an exaggerated price.
In some instances, a less frequent type of NFT rug pull involves sellers marketing a pre-minted token to unsuspecting buyers, creating a false sense of ownership and value.
Notorious Rug Pull Incidents
Crypto rug pulls typically involve building trust with investors, which is why many scams feature public figures to gain credibility. These scams often capture media attention due to the staggering financial losses inflicted on victims. One infamous example is the “Hawk Tuah” incident, where influencer Haliey Welch capitalized on her sudden fame to launch a meme coin called “Hawk.” The token peaked at a $490 million market cap before plummeting by 95% within hours, with Welch disappearing from public view thereafter.
Similarly, in 2021, developers behind the Squid token, inspired by the Netflix series “Squid Game,” vanished after the token’s value soared to $2,861. The founder of Thodex, Faruk Özer, absconded to Albania in 2021 with $2.6 billion of investments from 400,000 users, claiming the funds were lost due to a cyberattack. Celebrity-driven rug pulls are also notable, as seen when Kim Kardashian promoted EthereumMax to her massive Instagram following, resulting in a 97% value drop over six months. Her only consequence was a minimal fine from the SEC for failing to disclose the promotional nature of her post.
Protecting Yourself from Scams
Disclaimer: This article does not offer investment advice but aims to assist in recognizing potential scams.Entering a relatively nascent and loosely regulated investment arena—one of the defining characteristics of cryptocurrency—carries inherent risks. However, these risks can be mitigated through informed decision-making. Whether you are a first-time investor or a seasoned participant, consider these guidelines:
Always conduct thorough research before investing in any token. Seek transparency and a proven track record from the development team. Be cautious of anonymous developers and stay informed about developments within the crypto community.
Request an audit report from a reputable third party before investing, especially when dealing with newer or lesser-known projects.
Examine the token’s liquidity through white papers or smart contracts; secure funding for a predetermined timeframe is a positive sign, while loopholes enabling developers to withdraw funds without notice are significant red flags.
If you have any doubts about a token, consider abstaining from investment or starting with a minimal amount to limit potential losses. Also, be wary of influencer or celebrity endorsements, as they may not be the most reliable sources of financial advice. Utilizing people search tools to gather publicly available information about crypto developers and promoters can further enhance your due diligence.
