The first step to solving or avoiding a problem is to understand what it is. This fact becomes more important to keep in mind when interacting with the thrilling and unpredictable world of crypto. You are probably angry that a coin you invested in is no more, but you are not sure if it was a rug pull or simply a failed project.
While both situations hurt, they are really not the same. Understanding their difference is necessary because if you don’t, you either end up risking it all again or missing out on the next real web3 gem. So, follow me closely in this article as I help you untangle the signs of a rug pull and a project that was a pure failure.
Ready? Let’s dig in!
KEY TAKEAWAYS:
- A rug pull is an intentional scam where the people behind the project never had any real intention of building, maintaining, or delivering long-term value.
- A rug pull usually has an anonymous team, no clear use case, no lock on liquidity, and a sudden token dump by founders.
- A project failure happens when the team actually had plans to launch a meaningful project, but things didn’t go as planned.
- Signs of a project failure include real effort and communication, and developer activity on GitHub.
What Is a Rug Pull?
A rug pull is an intentional scam. Here, the people behind the project never had any real intention of building, maintaining, or delivering long-term value. From day one, the plan was to attract investors, pump the token price or NFT floor, and then disappear with the money.
In short, they are premeditated, strategic, and cold lies. Here are some common rug pull types:
- Liquidity pulls: The devs remove all the liquidity from a decentralized exchange pool, making it impossible for you to sell your tokens.
- Honeypots: You can buy the token, but you can’t sell it because the code was rigged from the start.
- Disappearing devs: Here, the founders vanish with treasury funds after raising capital via token presales, NFTs, or initial DEX offerings (IDOs).
How to Spot a Rug Pull
Now that you know what a rug pull is, let me walk you through its signs. If most of these boxes are checked for you, it is not a coincidence.
- Anonymous team: Rug pullers often hide behind fake names and verifiable history because they don’t plan to stick around.
- No clear use case: Projects with buzzwords and zero utility often exist just to pump and dump.
- No lock on liquidity: If there were no liquidity lock, the devs could (and often will) pull it the moment price surges.
- Sudden token dump by founders: Wallets tied to the devs sell large amounts of tokens right after the launch.
- Vanishing socials: The website will go offline fast, X (formerly Twitter) accounts will be deleted, and Telegram communities will be closed.
- Code manipulation or honeypot behavior: Here, it is either you can’t sell the token, or you are suddenly hit with crazy slippage fees.
Read Also – How to Spot and Avoid a Honeypot Scam
What Is a Project Failure?
A project failure happens when the team actually tries, but things don’t go as planned. Maybe they ran out of funds, couldn’t secure partnerships, the tokenomics didn’t work, or the market turned against them. The key difference between this and a rug pull? Intent.
This is why failed projects usually have evidence of work like GitHub commits, transparent roadmaps, and regular community updates. Additionally, in the end, they might admit they failed and offer a postmortem.
What Failed Projects Look Like
Here are signs that a project was more of an unfortunate business model rather than a scam.
- Real effort and communication: Even after launch, the team hosted Twitter Spaces, shared development updates, and maybe they even published audits. In other words, there was a real attempt to build.
- Dev activity on GitHub: The smart contract code was open source, and the developers were pushing code and working on the dApp.
- Market conditions crushed the momentum: Maybe the project launched right before a massive BTC dump or a government ban hit their sector.
- Treasury got drained or mismanaged: It could be that they spent too much on marketing, were overhired, or got hit by hacks. You’ll usually see transparency here, like a post explaining what went wrong.
- They didn’t ghost you: The founders don’t vanish. Instead, they admit defeat or even try to airdrop refunds.
Why It Matters Which One It Is
You might be wondering, “Well, what difference does it make? My money’s gone either way.” Yes, your position is valid, but here’s why you should care:
- Legal recourse: Rug pulls are crimes. As such, if the team is identifiable, you may be able to join or start legal action. While this is rare, it is not impossible.
- Learning what to avoid: If it was a rug, learn to spot the next one. If it was a failure, learn to evaluate the fundamentals of a project better.
- Reputation and second chances: Some failed founders bounce back and build again. You can follow those stories and decide if you trust will them next time.
Final Words
Losing money in crypto is very painful, but I want you to know that it does not mean your journey has to end. You just need to be careful next time. If you experienced a rug pull, you got betrayed, so you should cut all ties with the project. If it was a failed project, you made a wrong decision, but you should still give yourself some grace. Ultimately, it is good that you now have the right knowledge, so you can keep going wiser, sharper, and stronger.
References
- coingecko.com – Spotting Crypto Scams: How to Identify and Avoid Rug Pulls
- medium.com – Rugs, Slow Rugs & Failures in the NFT world: How to differentiate them
- techtarget.com – Cryptocurrency scams: Common types and prevention
