The anatomy of a Pump.fun rug pull

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Summary

Our research suggests memecoins on Solana are often pumped through hype and social media, then dumped by creators, causing price crashes.
It seems likely that creators use fast transactions and low fees on Solana to execute rugpulls quickly.
The evidence leans toward rugpulls involving selling tokens and removing liquidity, leaving investors with losses.

What Are Memecoins and Rugpulls?

Memecoins are cryptocurrencies based on internet memes, like Dogecoin or Shiba Inu, with no real utility, driven by speculation. On Solana, these coins attract investors due to the blockchain's fast speeds and low fees. A rugpull happens when creators or early investors suddenly sell their tokens, crashing the price and leaving others with worthless assets.

How Are They Pumped and Dumped?

The process typically involves:

Hype Creation: Creators promote the coin on social media, promising high returns to build excitement.
Token Launch: They add initial liquidity on a decentralized exchange (DEX) to start trading.
Price Inflation: They buy their own tokens to raise the price, creating fear of missing out (FOMO) for investors.
Dump Phase: Once the price is high, they sell off their tokens quickly, often removing liquidity, causing the price to crash.

Example: Catwifhat

Catwifhat, a Solana memecoin, faced two rugpulls. First, the founder sold 20% of tokens for $265 and removed liquidity, then a liquidity provider did the same, tanking the price. Despite this, the community helped it recover, showing resilience but also the risks involved.

Survey Note: Detailed Analysis of Memecoin Rugpulls on Solana

Memecoins on the Solana blockchain have become a focal point for both speculative investment and fraudulent activities, particularly rugpulls, where creators pump up the price and then dump their holdings, leaving investors with significant losses. This note provides a comprehensive examination of how these schemes operate, drawing on recent cases and industry insights, with a focus on the pumping and dumping phases. The analysis is grounded in available data and aims to inform investors of the risks, especially given Solana's reputation in 2024 for hosting the largest number of rugpulls, as reported by security firm Hacken Solana had the biggest rug pulls in 2024; hacken report.

Background: Memecoins and Solana's Appeal

Memecoins, such as Dogecoin or Shiba Inu, are cryptocurrencies inspired by internet memes, lacking intrinsic value or utility, and their prices are driven by speculation and community hype. Solana, known for its high transaction speeds (up to 50,000 transactions per second) and low fees, has become a preferred platform for launching such coins, making it attractive for both legitimate projects and scams. This environment, combined with the pseudonymous nature of decentralized finance (DeFi), has facilitated the rise of rugpulls, where developers abandon projects after draining funds, leaving investors with worthless assets.

The Pumping Phase: Building Hype and Trust

The pumping phase is critical for attracting investors and inflating the coin's value. Research suggests the following steps are commonly employed:

Conception and Planning: Scammers identify a popular meme or trend, such as a viral cat image or a trending X post, to base their memecoin on. For instance, Catwifhat (CIF) leveraged a feline-themed meme to gain traction.
Social Media Hype: Creators use platforms like X and Discord to generate excitement, promising "100x returns" or positioning the coin as "the next BONK." They may employ bots or pay influencers to amplify visibility, creating a sense of urgency. An example is the promotion of CoolMan's Universe (CoolCoin), which boasted over 100,000 followers on X before its launch.
Token Creation and Launch: The token is minted on Solana using tools like Pump.fun, a popular launchpad for memecoins. Initial liquidity is added to a decentralized exchange (DEX) like Raydium or Orca, enabling trading. This step is quick due to Solana's low fees, often costing just a few SOL (around $100-$200).
Community Building: Scammers engage with potential investors, answering questions on Discord and creating a sense of community. They might promise future developments or partnerships to build trust, though these are often false. For example, Sharpei (SHAR) claimed partnerships with exchanges, which later proved to be fabricated.

During this phase, the price may rise due to early investors buying in, driven by FOMO (fear of missing out). The evidence leans toward scammers using their own funds to buy tokens, further inflating the price, as seen in the case of Sharpei, which reached a $54 million market cap in under an hour before collapsing.

The Dumping Phase: Execution of the Rugpull

Once the price is sufficiently pumped, the dumping phase begins, often executed rapidly due to Solana's fast transaction speeds. The steps include:

Selling Off Tokens: Creators sell their holdings en masse, often through multiple wallets to avoid detection. For instance, in the Catwifhat case, the founder dumped 20% of the supply for 3.86 SOL (worth approximately $265 at the time) on December 12, 2023, as detailed in Meet the Solana memecoin that suffered two rug pulls but still survived. Another example is Sharpei, where insiders sold $3 million worth of tokens in seconds, causing a 96% price drop, as reported in Solana Meme Coin Sharpei Plunges 96% in Seconds in Epic Rug Pull.
Removing Liquidity: They withdraw all or most of the liquidity from the DEX, making it difficult for other investors to sell their tokens. In Catwifhat's second rugpull, the largest liquidity provider removed 92% of liquidity, tanking the price by ~76%, as noted in the same Cointelegraph article.
Disappearance: After selling, scammers often delete their social media accounts or stop communicating, abandoning the project. This leaves late investors with worthless tokens, as seen in numerous Reddit discussions, such as r/solana on Reddit: Every meme coin is a rug pull.., where users express frustration over frequent rugpulls.

This process can happen within hours or days, exploiting Solana's efficiency. For example, the CoolMan's Universe case reportedly saw a $2 million rugpull in just one hour, highlighting the speed at which these schemes can unfold.

Case Studies: Illustrative Examples

To provide concrete insights, consider the following cases, which exemplify the pumping and dumping process:

Catwifhat (CIF): Launched on December 12, 2023, it faced two rugpulls within 12 days. The first involved the founder dumping tokens and removing liquidity, followed by a second incident where the social media manager did the same. Despite these events, the community regrouped, and by April 2024, it had a market cap of ~$1.4 million, as per Meet the Solana memecoin that suffered two rug pulls but still survived. This case shows both the vulnerability to rugpulls and the potential for community recovery.

Date	Details of Rug Pull	Impact
Dec. 12, 2023	Founder dumped 20% of supply for $265, removed most liquidity.	Price crashed, tokens nearly worthless.
Dec. 24, 2023	Largest liquidity provider removed 92% liquidity, tanking price by ~76%.	Market cap dropped from $2.6M to $981,300.

Sharpei (SHAR): Promoted by crypto influencers, it reached a $54 million market cap in under an hour, but insiders sold $3 million worth of tokens, causing a 96% price drop in seconds, as detailed in Solana Meme Coin Sharpei Plunges 96% in Seconds in Epic Rug Pull. This illustrates how quickly a dump can occur, leaving investors with significant losses.

These cases underscore the risks, with Hacken's 2024 report noting Solana's dominance in rugpull incidents, contrasting with BNB Chain's drop from 149 incidents in 2023 to 10 in 2024, as per Solana had the biggest rug pulls in 2024; hacken report.

Frequency and Impact

The frequency of rugpulls on Solana is notably high, with estimates suggesting 95% of contracts may be built by malicious actors, according to Big_Cat, as mentioned in 5 dangers to beware when apeing into Solana memecoins. In December 2023 alone, 100,000 new tokens were launched, many of which were likely rugpulls, contributing to investor losses. A CryptoSlate article, How traders make over $60k per week rugging 98% of memecoins on Pump.Fun, highlights the scale, noting traders exploiting vulnerabilities to generate significant profits, with some claiming to rug 98% of memecoins on the Pump.fun platform.

Detection and Protection: An Unexpected Insight

While the user's query focuses on the process, an unexpected insight is the community's role in detection and recovery. Tools like BirdEye, RugCheck, and SolScan, as mentioned in ▷ Meme Coin Traiding: How to Avoid Rug Pulls?, help investors check liquidity, token age, and mint authority. Additionally, cases like Catwifhat show communities can sometimes salvage projects, though this is not guaranteed. This resilience contrasts with the typical narrative of total loss, offering a glimmer of hope for investors.

Conclusion

Memecoins on Solana are pumped through aggressive social media campaigns and price manipulation, then dumped via rapid token sales and liquidity removal, exploiting the blockchain's efficiency. Cases like Catwifhat and Sharpei illustrate the process, with Solana's 2024 dominance in rugpulls highlighting the risks. Investors should be cautious, conducting due diligence and using detection tools, while acknowledging the potential for community-driven recovery in some instances.

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Key Points

Research suggests memecoins on Solana are often pumped through hype and social media, then dumped by creators, causing price crashes.
It seems likely that creators use fast transactions and low fees on Solana to execute rugpulls quickly.
The evidence leans toward rugpulls involving selling tokens and removing liquidity, leaving investors with losses.