Recently, more and more people are asking me what rug pull is and how it works in practice. It’s worth knowing that it is one of the most common types of scams in the cryptocurrency world, although, seriously, it can appear practically anywhere.

Before you start investing, you should understand how this mechanism functions. Malicious developers create a new token, promising miracles and the sky. They attract investors with promises of high returns, and the project’s value increases. But at some point, everything changes — the developers simply withdraw all the funds, leaving the project without liquidity. The price drops to zero, and you’re left with nothing.

Regarding the rug pull itself — there are three main variants of this scam. The first is liquidity wiping, which means withdrawing all liquidity from the pool. This is the most popular method because it’s the simplest. The second variant is blocking sell orders through malicious code in the smart contract — the investor wants to sell but cannot. The third is a straightforward dump, which involves quickly selling a large amount of tokens, causing a sharp price drop. This usually happens after intense social media campaigns.

How to protect yourself? That’s a question everyone should ask. First, thoroughly research the project before investing your money. Pay attention to unblocked liquidity — that’s a red flag. If the profits seem suspiciously high, they probably are. Check if the project has undergone a security audit. Look for information about the developers and verify if the code is transparent. If you see restrictions on sell orders, run as far away as possible.

Really, caution is key. Many projects on Gate have transparent structures and have been audited, but it’s always worth checking yourself. Don’t take anything at face value; do your own research and make informed decisions.