Rug Pull

A rug pull is a scam pattern (predominantly in DeFi and altcoin markets) where project founders attract investment into a token, contract, or liquidity pool, then abruptly drain it and disappear. The investors are left holding worthless tokens; the founders abscond with the real value.

The mechanics in a classic DeFi rug pull:

1. Founders create a new token on Ethereum or another smart-contract chain.
2. They promote it hard, on promises that turn out to be false.
3. Users buy the token, which puts money into a liquidity pool on a decentralized exchange, a pool the founders control.
4. Once enough money is in, the founders drain the liquidity pool, and the token's price falls to near zero.
5. The website goes offline and the founders disappear.

Why this is structurally less common in Bitcoin:

• No general-purpose smart contracts. Bitcoin's scripting language is deliberately limited, with no loops, so its base layer has no programmable liquidity pools of the kind that get drained. Most rug pulls happen on programmable-contract platforms.
• No projects to invest in at the protocol level. You can hold BTC, full stop. There's no "Bitcoin project" issuing tokens that you're funding.
• No founders to abscond. New bitcoin comes from mining, with no central issuer; no team controls the supply or can drain it.

Where rug-pull-like scams DO happen in the Bitcoin context:

• Custodial scams. QuadrigaCX, Bitconnect and BitClub Network all took in customers' money or bitcoin, and regulators or prosecutors later described each one as a fraud or a Ponzi scheme. Functionally similar pattern: trust the operator, operator drains funds. The Bitcoin is real; the custodian is the scam. Mt. Gox is often lumped in with these, but it fits less well: investigators traced its missing coins to thefts from its hot wallet, and its CEO was acquitted of embezzlement.
• Bitcoin "yield" products. A company paying yield on your bitcoin usually gets it by lending your coins out, and that lending can go bad. Celsius, Genesis and BlockFi all lent or invested customers' coins elsewhere, and all three went bankrupt in 2022-2023. Genesis's loans were undersecured, and Celsius's founder was later sentenced to 12 years for fraud.
• Mining-share scams. Hashlet / GAW Miners' Hashlets are the canonical example: sold fractional ownership of mining hash rate that didn't exist. Pure Ponzi.
• "Bitcoin-related" tokens. BRC-20 tokens are written onto Bitcoin's chain as inscriptions, but their balances are tracked off-chain by indexers, not by Bitcoin's rules. A token like that can be hyped and dumped like any altcoin, and it is separate from BTC itself.

The protective framing:

• If a "Bitcoin product" pays yield greater than the risk-free rate, it's either lending your BTC out (counterparty risk, as Celsius customers learned) or paying old depositors with new deposits (the Bitconnect story), or it's outright fraud.
• If a project asks you to deposit BTC and trust their custody, you're not buying Bitcoin's properties anymore. You're buying their operational integrity.
• Self-custody takes the custodian out of the picture. Hardware wallet + seed phrase + cold storage. Nobody can drain coins they have no access to.

The honest term-of-art point: "rug pull" is borrowed from altcoin / DeFi culture, where it became common around 2021. In Bitcoin contexts, it usually refers to either custodial failures (which go back years before the term caught on) or tokens issued on top of Bitcoin's chain (which can be rugged without touching BTC itself). The structural lesson is older and simpler: not your keys, not your coins.

See Rat Poison, Tulips and a Pet Rock for the frauds that used bitcoin as the deposit, and why the convictions were of custodians rather than the protocol.