Binance Issues Rug-Pull Checklist, Warns High Volume and Holder Counts Don’t Guarantee Safety

Binance on Sept. 14 released key warning signs of rug pulls, a form of digital-asset fraud, along with a checklist investors should review in advance.

A rug pull occurs when project developers or insiders abruptly withdraw liquidity supplied to a trading pool or sell large amounts of tokens they hold, pushing prices lower.

Binance said investors should assess several factors together when evaluating the risk of a rug pull. Those include whether project insiders have the authority to withdraw liquidity, how concentrated token holdings are, whether trading volume is moving abnormally, and whether a project guarantees fixed returns or urges immediate purchases.

The exchange said fraud groups can artificially inflate trading volume through wash trading, in which the same token is bought and sold between multiple wallets they control. They can also use numerous wallets to buy tokens at similar times, making it appear that more investors have entered the project than actually have and boosting holder counts.

Investors should also check whether a project is structured so insiders can remove liquidity at their discretion and whether token supply is excessively concentrated in a small number of wallets, Binance said. Caution is also warranted when prices, trading volume and holder counts surge over a short period, or when a project promises guaranteed returns and pushes investors to buy immediately.

The exchange added that a verified smart contract only means its code can be reviewed, not that the project itself is trustworthy. Locked liquidity, it said, also does not prevent insiders from selling large token holdings.