Rug pulls happen when an altcoin or NFT team abandons its project and disappears with the money raised from investors. In other words, a rug pull occurs when an individual or group behind an NFT project doesn't deliver on their promises after getting investor funds. Typically, the founders will release a small collection of NFTs to tease a bigger project with enticing benefits, such as exclusive access to events, blockchain games, or merchandise.
Additionally, many NFT creators pay influencers to promote their collections or host expensive giveaways in order to generate excitement around their projects.
In many instances, rug pulls happen quickly. However, there are also cases where a rug pull unfolds slowly, and the project is quietly abandoned with little to no updates or developments. Most commonly, rug pull schemes are perpetrated by an anonymous person or group, as this makes disappearing without a trace easier.
Common rug pull signs include a token price that rockets in a short amount of time without any protection on liquidity. If the project owners can remove their funds immediately or very shortly after the project’s launch, there is an opportunity for a rug pull. There will likely also be a lot of investor hype via Twitter, Telegram, and other social media platforms. To protect yourself from rug pulls, make sure to do diligent research on projects. This will include looking at the state of the product, its tokenomics, token distribution method, liquidity, and team. You can minimize your risk by making sure the above are all as transparent as possible and verifiable.