# What Is a 'Rug Pull' and How Is It Executed in a DeFi Protocol? ⎊ Path

**Published:** 2025-12-04
**Author:** Greeks.live
**Categories:** Path

---

## What Is a ‘Rug Pull’ and How Is It Executed in a DeFi Protocol?

A 'rug pull' is a malicious maneuver in which cryptocurrency developers suddenly drain all the liquidity from a decentralized exchange (DEX) pool. This typically happens after the token has been hyped and investors have deposited significant funds into the liquidity pool.

Once the funds are removed, the token's price plummets to near zero, leaving investors with worthless assets. It is a form of exit scam often facilitated by smart contract backdoors or lack of lock-up periods.

- [What Is a ‘Rug Pull’ in the Context of a Cryptocurrency Project?](https://learn.greeks.live/path/what-is-a-rug-pull-in-the-context-of-a-cryptocurrency-project/)

- [What Is “Liquidity” in the Context of a DeFi Rug Pull?](https://learn.greeks.live/path/what-is-liquidity-in-the-context-of-a-defi-rug-pull/)

- [What Is a Liquidity Pool and How Does Locking It Prevent Rug Pulls?](https://learn.greeks.live/path/what-is-a-liquidity-pool-and-how-does-locking-it-prevent-rug-pulls/)

- [What Is a “Rug Pull” in the Context of a Liquidity Pool?](https://learn.greeks.live/path/what-is-a-rug-pull-in-the-context-of-a-liquidity-pool/)

- [How Do Developers Technically Execute a Rug Pull on a Decentralized Exchange?](https://learn.greeks.live/path/how-do-developers-technically-execute-a-rug-pull-on-a-decentralized-exchange/)

- [What Is the Difference between a Soft Rug Pull and a Hard Rug Pull?](https://learn.greeks.live/path/what-is-the-difference-between-a-soft-rug-pull-and-a-hard-rug-pull/)

- [What Is the Role of a DEX Liquidity Pool in a Rug Pull?](https://learn.greeks.live/path/what-is-the-role-of-a-dex-liquidity-pool-in-a-rug-pull/)

- [How Does a Pump-and-Dump Scheme Differ from a Rug Pull in Terms of Market Manipulation?](https://learn.greeks.live/path/how-does-a-pump-and-dump-scheme-differ-from-a-rug-pull-in-terms-of-market-manipulation/)

## Glossar

### [Exit Scam](https://learn.greeks.live/area/exit-scam/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Departure ⎊ An Exit Scam occurs when the creators of a cryptocurrency project or platform abruptly cease operations, liquidate project assets, and disappear with investor funds, often after a period of high-profile promotion.

### [Malicious Maneuver](https://learn.greeks.live/area/malicious-maneuver/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Manipulation ⎊ These actions represent deliberate attempts to distort market signals or exploit protocol vulnerabilities for illicit gain, directly undermining fair price discovery in derivatives.

### [Liquidity Pool](https://learn.greeks.live/area/liquidity-pool/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Pool ⎊ A liquidity pool, within the context of cryptocurrency derivatives and options trading, represents a centralized reserve of tokens locked in a smart contract, facilitating decentralized trading and price discovery.

### [Token Vesting Schedules](https://learn.greeks.live/area/token-vesting-schedules/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Allocation ⎊ Token vesting schedules, prevalent in cryptocurrency projects and increasingly mirrored in options trading and financial derivatives, represent a contractual mechanism distributing a portion of an asset ⎊ typically tokens or equity ⎊ over a predetermined period.

### [Smart Contract Backdoors](https://learn.greeks.live/area/smart-contract-backdoors/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Exploit ⎊ Within cryptocurrency derivatives and financial engineering, an exploit concerning smart contract backdoors represents a critical vulnerability where malicious code, intentionally or unintentionally embedded, allows unauthorized access or manipulation of contract state.

### [Decentralized Exchange](https://learn.greeks.live/area/decentralized-exchange/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Architecture ⎊ A decentralized exchange (DEX) fundamentally diverges from traditional order book exchanges through its reliance on smart contracts and blockchain technology to facilitate peer-to-peer trading, eliminating the need for a central intermediary.

## Discover More

### [How Does the Liquidation Mechanism Work in a DeFi Lending Protocol?](https://learn.greeks.live/path/how-does-the-liquidation-mechanism-work-in-a-defi-lending-protocol/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Liquidation Mechanism Work in a DeFi Lending Protocol?](https://learn.greeks.live/wp-content/uploads/2025/10/Quantum-Magnetically-Levitated-Asset-Core-Reflection-of-Decentralized-Derivatives-Exchange-Mechanism.webp)

Smart contracts automatically seize and sell collateral when its value drops below a set ratio to ensure protocol solvency.

### [What Is "Locking Liquidity" and How Does It Prevent a Rug Pull?](https://learn.greeks.live/path/what-is-locking-liquidity-and-how-does-it-prevent-a-rug-pull/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is "Locking Liquidity" and How Does It Prevent a Rug Pull?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Instrument-Mimicking-Digital-Asset-Volatility-Surface-Mapping-for-Option-Pricing-Models.webp)

Locking liquidity puts LP tokens into a time-lock contract, preventing developers from withdrawing the pool's underlying assets until a set date.

### [What Is "Rug Pull" Risk in the Context of a New DeFi Derivatives Protocol?](https://learn.greeks.live/path/what-is-rug-pull-risk-in-the-context-of-a-new-defi-derivatives-protocol/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is "Rug Pull" Risk in the Context of a New DeFi Derivatives Protocol?](https://learn.greeks.live/wp-content/uploads/2025/10/Advanced-Mechanistic-Depiction-of-Cross-Chain-Atomic-Swap-Execution-Primitives-Underneath-Curve-Protocol-Structures.webp)

The risk that protocol developers steal the DAO's collateral by exploiting a backdoor or retaining centralized control over the smart contract.

### [What Is the Risk of "Rug Pulls" in the Context of DeFi Dapps?](https://learn.greeks.live/path/what-is-the-risk-of-rug-pulls-in-the-context-of-defi-dapps/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Risk of "Rug Pulls" in the Context of DeFi Dapps?](https://learn.greeks.live/wp-content/uploads/2025/10/Precision-Machined-Actuator-Assembly-Visualizing-Decentralized-Autonomous-Organization-Governance-Protocol-Mechanism.webp)

Developers secretly remove all pooled assets, causing the token's value to crash, leaving investors with losses.

### [What Is the Risk of a "Rug Pull" and How Does Immutability Relate to It?](https://learn.greeks.live/path/what-is-the-risk-of-a-rug-pull-and-how-does-immutability-relate-to-it/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Risk of a "Rug Pull" and How Does Immutability Relate to It?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Exchange-Liquidity-Pool-Mechanism-Visualized-Through-Abstract-Collateralized-Exotic-Option-Structures.webp)

A developer's malicious draining of a liquidity pool, which is either prevented or enabled by the contract's immutability and code transparency.

### [What Is the Replace-by-Fee (RBF) Protocol and How Is It Activated?](https://learn.greeks.live/path/what-is-the-replace-by-fee-rbf-protocol-and-how-is-it-activated/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Replace-by-Fee (RBF) Protocol and How Is It Activated?](https://learn.greeks.live/wp-content/uploads/2025/10/Exogenous-Payload-Delivery-System-Interaction-with-Blockchain-Transactional-Vectors-Illustrating-Volatility-Skew.webp)

RBF allows replacement of an unconfirmed transaction with a higher-fee one and is activated by setting an RBF signal in the original transaction.

### [What Is a Liquidity Pool and How Does Locking It Prevent Rug Pulls?](https://learn.greeks.live/path/what-is-a-liquidity-pool-and-how-does-locking-it-prevent-rug-pulls/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is a Liquidity Pool and How Does Locking It Prevent Rug Pulls?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Exchange-Liquidity-Pool-Mechanism-Focusing-on-Automated-Market-Maker-Configuration-Audits.webp)

A liquidity pool is a fund for trading on a DEX; locking it prevents developers from stealing the funds in a rug pull.

### [How Does Total Value Locked (TVL) Serve as a Metric for the Success or Vulnerability of a DeFi Protocol?](https://learn.greeks.live/path/how-does-total-value-locked-tvl-serve-as-a-metric-for-the-success-or-vulnerability-of-a-defi-protocol/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Total Value Locked (TVL) Serve as a Metric for the Success or Vulnerability of a DeFi Protocol?](https://learn.greeks.live/wp-content/uploads/2025/10/Futuristic-Audio-Transducer-Design-Reflecting-Asymmetric-Volatility-Surface-Calibration-In-Digital-Asset-Hedging.webp)

High TVL shows success and liquidity, but it also increases the financial incentive and target size for hackers.

### [Can a Validator Also Act as a Market Maker in a DeFi Protocol?](https://learn.greeks.live/path/can-a-validator-also-act-as-a-market-maker-in-a-defi-protocol/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Can a Validator Also Act as a Market Maker in a DeFi Protocol?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Exchange-Automated-Market-Maker-Mechanism-Aperture-Modulating-Volatility-Surface.webp)

Yes, a validator can combine MM functions (arbitrage/liquidity provision) with their power to ensure optimal transaction sequencing via MEV extraction.

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**Original URL:** https://learn.greeks.live/learn/what-is-a-rug-pull-and-how-is-it-executed-in-a-defi-protocol/
