What is a Rug Pull and Liquidity Pool Scam?

On April 17, 2025, someone on X posted a warning about a token I’m calling $FAKE, which operates on the Solana blockchain. Here’s the main point of their message:

RUG IN PROGRESS!!

Over the past month, 13 million $FAKE tokens were sold off through sneaky tricks with liquidity pools, netting the team 60,304 $SOL (that’s about $8.02 million!). It’s the same old scam playbook, just with new victims. Stay sharp, folks!

They also mentioned that this wasn’t the first warning. On April 10, 2025, they had already flagged this project, noting that the $FAKE team sold 6.72 million tokens and collected 34,168 $SOL (worth $4.2 million), moving the money across 8 different wallets to cover their tracks. So, this was a pattern of shady behavior that got worse over time.

What’s a Rug Pull?

If you’re new to crypto, a rug pull is when the creators of a project trick people into buying their token, then disappear with the money, leaving investors with worthless coins. It’s a common scam in decentralized finance (DeFi), where there’s less oversight than in traditional finance. Some online sources say over 2 million investors have been hit by rug pulls—more than the number affected by big crypto exchange failures like FTX.

In a rug pull, the scammers create a new token, hype it up to get people to buy, and then suddenly dump their tokens or drain the funds, leaving everyone else with nothing. With $FAKE, the team used a trick involving “liquidity pools” to pull this off. Let me explain that in simple terms.

How $FAKE Pulled It Off with Liquidity Pools

In crypto, tokens like $FAKE are often traded on decentralized exchanges (DEXs), like ones on Solana. These platforms don’t have a middleman to match buyers and sellers. Instead, they use something called a liquidity pool, which is like a big pot of money that people trade against. For $FAKE, the pool would have $FAKE tokens paired with $SOL (Solana’s main cryptocurrency, similar to Ethereum’s ETH).

Here’s how the $FAKE team used this system to scam people:

They Set Up the Pool to Look Legit:

The $FAKE team created their token and added a bunch of $FAKE tokens and $SOL to a liquidity pool on a DEX. This made $FAKE tradable, so people could buy it with $SOL. It’s like setting up a lemonade stand with a sign saying, “Buy a cup for $1!”—it looks like a real business.

They Hyped It Up to Get People to Buy:

They spread the word on social media, maybe even paying influencers to talk up $FAKE. People saw the price going up as more folks bought in with $SOL, and they got excited, thinking, “This is gonna be huge!” Every time someone bought $FAKE, they added more $SOL to the pool, and the price of $FAKE went up because there were fewer $FAKE tokens left in the pot.

They Pulled the Rug by Taking the Money Out:

Once the pool had a lot of $SOL (60,304 $SOL, worth $8.02 million in this case), the $FAKE team took their money out. Since they controlled most of the pool (reports say they owned 92% of $FAKE’s total supply), they could just withdraw their $FAKE tokens and take the $SOL with them. It’s like if the lemonade stand owner took all the cash from the jar and left, leaving you with a worthless “lemonade coupon” you can’t use anywhere.

When they pulled out the $SOL, there wasn’t enough left in the pool for other people to sell their $FAKE tokens. The price crashed hard—down 96% from its highest point, according to some reports—leaving investors stuck with tokens worth almost nothing.

They Hid the Money:

To cover their tracks, the $FAKE team moved the $SOL across multiple wallets. This makes it harder for anyone to trace where the money went, like passing stolen cash through several hands to hide who took it.

A Simple Example: The $GLOW Token

To make this easier to picture, let’s imagine a fake token called $GLOW and see how this scam might play out.

The Setup

The $GLOW team creates 1 million $GLOW tokens and sets up a liquidity pool on a Solana DEX. They add 500,000 $GLOW tokens and 5,000 $SOL (worth $500,000, assuming $SOL is $100 each) to the pool. This makes $GLOW tradable, starting at $1 per $GLOW.

Step 1: Hype It Up

The team posts all over social media, saying $GLOW is “the next big thing.” People get excited and start buying $GLOW with $SOL. Let’s say 100 investors buy 200,000 $GLOW tokens by putting in 2,000 $SOL (worth $200,000).

Now the pool has:

300,000 $GLOW (500,000 – 200,000)

7,000 $SOL (5,000 + 2,000)

The price of $GLOW goes up to about $2.33 because there’s less $GLOW in the pool compared to $SOL.

Step 2: Pull the Rug

The pool now has 7,000 $SOL (worth $700,000), and the $GLOW team sees their chance. They take out their share of the pool—let’s say 6,000 $SOL (worth $600,000)—leaving just 1,000 $SOL in the pool.

Now there’s barely any $SOL left for others to trade with. If you try to sell your $GLOW, the price crashes to almost nothing because there’s not enough $SOL to go around. Your $GLOW tokens are worthless, and the team walks away with $600,000.

Step 3: Disappear

The $GLOW team moves the $SOL to different wallets and vanishes, leaving investors with nothing but a bad feeling.

Why This Is So Dangerous

This kind of scam works because:

It Looks Real at First: Adding liquidity makes the token seem legit and tradable, so people trust it.
Hype Pulls People In: Everyone wants to get rich quick, and scammers know how to play on that with big promises.
DEXs Don’t Have Rules: Unlike regular exchanges, DEXs don’t have someone checking for fraud, so scammers can get away with this more easily.

The $FAKE token crashed 96% after the team pulled out, and one report mentioned a $2M withdrawal from the liquidity pool, which fits this exact scam method. It’s a classic rug pull, and it shows why we need to be extra careful in crypto.

How to Stay Safe

Here are some tips I’ve picked up to avoid getting scammed like this:

Check Who Owns the Tokens: If the team owns most of the tokens (like 92% in $FAKE’s case), they can control everything and scam you.
Look for Locked Liquidity: Some legit projects lock their liquidity in a smart contract so they can’t pull it out right away. If it’s not locked, that’s a red flag.
Be Wary of Hype: If a project is all hype with no real purpose (like many meme coins), it might just be a scam.
Do Your Homework: Research the team, read the project’s details, and make sure it’s actually legit.

Crypto can be exciting, but it’s also risky. Stay smart out there, and don’t fall for the next $FAKE!