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What is a rug pull, and does a liquidity lock prevent it?

A rug pull is when the people behind a token take the money out and leave holders with a token that can barely be sold. On a Solana DEX this usually happens by withdrawing the pool's liquidity, by insiders selling a large share of the supply, or by abusing a mint or freeze authority. Burned or locked liquidity rules out the first route only.

Updated

Three ways a rug pull happens

  • Liquidity withdrawal. Whoever added the pool's liquidity can remove it, unless it is burned or locked. Once the paired SOL or USDC is gone, the token has almost nothing to be sold into.
  • Insider selling. Wallets that got a large share of the supply cheaply, often in the first minutes, sell it into the pool. Liquidity is not removed, but the price collapses. See holder concentration.
  • Authority abuse. An active mint authority lets the creator print and sell new tokens; an active freeze authority lets them stop others from selling.

Burned, locked and unlocked liquidity

When someone adds liquidity to a standard pool, they receive LP tokens: a receipt for their share of the pool, which can be redeemed later to withdraw it.

  • Burned: the LP tokens are destroyed, so that share of liquidity can never be withdrawn by anyone.
  • Locked: the LP tokens or the position are held by a locking program. Some locks are permanent (Raydium's Burn & Earn, for example, keeps the trading fees claimable); third-party time locks release the liquidity on a set date.
  • Unlocked: the provider can withdraw at any time.

Concentrated-liquidity pools work differently: positions are usually represented by NFTs rather than LP tokens, and locking them depends on the protocol. Check what share of the pool is actually burned or locked, and until when, not just whether "liquidity is locked".

What a lock does not protect against

A permanent lock keeps the pool from being emptied, but the token can still lose most of its value: insiders can sell their tokens into the locked pool, new tokens can be minted if the mint authority is active, and accounts can be frozen if the freeze authority is. A time lock only protects until it expires. A lock is one good sign, not a verdict.

Warning signs in market data

RateKite does not check whether liquidity is locked or burned. Its Risk Score does measure the conditions that make a rug pull more damaging or easier to spot:

  • thin liquidity, or liquidity small relative to the token's valuation;
  • a very young pair;
  • a sharp drawdown, such as more than 40% in an hour;
  • heavy one-sided selling;
  • concentrated holders and active mint or freeze authorities.

All of these appear line by line on every token page. For the full checklist, see how to check a new token.

Frequently asked questions

If liquidity is burned, can the token still be rugged?
The pool can no longer be emptied, but insiders can still sell large holdings into it, and active mint or freeze authorities can still be abused. Burned liquidity removes one route, not all of them.
What is the difference between burned and locked liquidity?
Burned LP tokens are destroyed, so nobody can ever withdraw that liquidity. Locked liquidity is held by a locking program: permanently in some cases, or only until an unlock date with third-party time locks.
Does RateKite show whether liquidity is locked?
No. RateKite scores liquidity depth, pair age, price action, trading pattern, holders and authorities. Check lock status on a block explorer or the locking service.