Case Study 2: Anatomy of a Rug Pull — How Squid Game Token Stole $3.4 Million

Background

On October 26, 2021, a token called SQUID appeared on the Binance Smart Chain (now BNB Chain). It was named after the massively popular Netflix series Squid Game, which had premiered a month earlier and become a global cultural phenomenon. The token's creators claimed it was the native currency of an upcoming "play-to-earn" game inspired by the show, where players would compete in challenges and earn cryptocurrency.

Within days, SQUID became one of the most discussed tokens on social media. Its price rose from $0.01 at launch to an all-time high of approximately $2,861 on November 1, 2021 — a 28,610,000% increase in less than a week. Then, in the span of approximately five minutes, the price collapsed to effectively zero. The creators had drained the liquidity pool, extracting an estimated $3.4 million in BNB. Thousands of investors were left holding worthless tokens they could not sell.

The Squid Game Token rug pull was not the largest crypto scam in history. It was not even the largest rug pull of 2021. But it became one of the most widely reported, precisely because it exploited a cultural moment and attracted attention from mainstream media outlets that do not normally cover cryptocurrency. For many people, SQUID was their first encounter with both cryptocurrency and crypto fraud.

This case study applies the 10-point evaluation framework to SQUID, demonstrating that every red flag in the chapter's checklist was visible before the rug pull occurred. The information needed to identify this as a scam was publicly available from the day of launch.

The Red Flags: A Chronological Analysis

Before Launch: The Whitepaper and Website

The SQUID project launched with a website and a whitepaper. Both contained multiple red flags that would have been apparent to anyone applying the evaluation framework.

Red Flag #1: No verifiable team. The website listed no team members. There were no names, no photographs, no LinkedIn profiles, and no verifiable credentials. The domain registration was private. The only communication channel was a Telegram group — and this is where the next red flag emerged.

Red Flag #2: Locked Telegram group. The project's Telegram group was set to "broadcast only" — members could read messages from the team but could not post messages, ask questions, or express concerns. This is red flag #4 from the chapter's checklist (locked or disabled community discussion). When investors reported being unable to ask questions, the team did not respond.

Red Flag #3: No affiliation with Netflix or the Squid Game show. The project used the Squid Game brand, imagery, and narrative without any license or partnership with Netflix. This was not disclosed on the website; instead, the presentation was designed to create the impression of an official connection. Using a major entertainment property's intellectual property without authorization is both legally precarious and a sign of bad faith.

Red Flag #4: The whitepaper was incoherent. The whitepaper described a play-to-earn game in which players would pay an entry fee in SQUID tokens to participate in rounds inspired by the show's games (Red Light/Green Light, Tug of War, etc.). Winners would receive the losers' entry fees minus a platform commission. The economics were poorly specified, the technical architecture was vague, and the document contained numerous grammatical errors and inconsistencies. There was no game design document, no technical specification, and no prototype.

At Launch: The Token Contract

Red Flag #5: Anti-sell mechanism (honeypot structure). This was the most critical technical red flag and the one that should have stopped any informed investor immediately. The SQUID token contract contained a mechanism that prevented holders from selling their tokens on PancakeSwap (the primary DEX on BNB Chain). The specific mechanism was an "anti-dumping" feature that the team described as a design choice for the game — players needed to hold "marbles" (another token) in addition to SQUID in order to sell. In practice, the marbles were nearly impossible to obtain, meaning buyers could purchase SQUID but could not sell it.

This was visible on-chain. Anyone who checked the token's transaction history on BscScan would have seen that while there were thousands of buy transactions, there were virtually no sell transactions from non-deployer addresses. The token was a honeypot: money could go in but could not come out.

Red Flag #6: Unverified contract. The smart contract's source code was not verified on BscScan. Investors could not read the contract code to understand what it did. They were trusting the team's description of the token's mechanics without any ability to verify those claims.

Red Flag #7: Massive deployer concentration. The deployer wallet and associated wallets held a disproportionate share of the token supply. On-chain analysis showed that a small number of wallets controlled enough tokens to crash the price at any time.

During the Hype Phase: Social Media and Price Action

Red Flag #8: Parabolic price increase with no fundamental driver. SQUID's price increased by over 28 million percent in less than a week. This price action was driven entirely by speculative buying (and the inability to sell, which prevented any price correction). There was no product, no user base, no revenue, and no fundamental reason for the token to have any value at all.

Red Flag #9: Mainstream media coverage amplified the scam. Multiple mainstream media outlets, including CNBC, the BBC, and Business Insider, reported on SQUID's spectacular price rise. Most of these reports noted the red flags but framed the story primarily around the astonishing price appreciation. This coverage attracted a new wave of buyers who had heard of the token through news reports rather than through crypto-native channels. Some outlets later faced criticism for effectively advertising a scam by leading with the price action rather than the warnings.

Red Flag #10: No working product. The play-to-earn game did not exist. There was no playable prototype, no beta test, no demo, and no evidence that game development had begun. The entire product was a promise — a promise made by an anonymous team through a locked Telegram channel, backed by an unverified smart contract that prevented selling.

The Rug Pull: November 1, 2021

On November 1, 2021, at approximately 5:40 AM UTC, the SQUID token price was trading at around $2,861. Within five minutes, the price collapsed to approximately $0.0008. The team had executed the rug pull.

The mechanism was straightforward: 1. The team had access to the liquidity pool that paired SQUID with BNB on PancakeSwap. 2. They removed their liquidity, extracting the BNB that had accumulated in the pool from buyers' purchases. 3. With no liquidity remaining, the token could not be traded at any meaningful price. 4. The estimated total extraction was approximately $3.4 million in BNB.

After the pull: - The project's website went offline - The Telegram channel was deleted - The associated Twitter account was deleted - No team member was identified or contacted

The BNB extracted from the liquidity pool was moved through a series of transactions designed to obscure the trail. Blockchain analytics firms tracked some of the funds through Tornado Cash (a mixing protocol), but the anonymous nature of the team meant there was no one to hold accountable.

Applying the 10-Point Framework

Let us apply the full evaluation framework as it would have been applied before the rug pull, using only information that was publicly available at the time of launch.

Question 1: What Problem Does It Solve?

Rating: Fail. The stated "problem" was that people wanted to play a crypto game based on Squid Game. This is not a real problem — it is an entertainment concept. There was no evidence of demand beyond speculative interest in the token. The "show me the user" test fails completely: no one was actively seeking a play-to-earn Squid Game experience and comparing solutions. The entire premise was a marketing hook exploiting a cultural moment.

Question 2: Does It Need a Blockchain?

Rating: Fail. Even if the game concept were legitimate, a play-to-earn game does not inherently require its own token. The game mechanics described in the whitepaper (entry fees, winner-takes-pot) could be implemented with any existing cryptocurrency or even with traditional payment processing. The SQUID token existed solely as a fundraising mechanism.

Question 3: Technical Architecture?

Rating: Critical fail. The contract was unverified, preventing code inspection. The anti-sell mechanism was a honeypot. There was no game architecture, no technical specification, and no evidence of engineering capability.

Question 4: Governance?

Rating: Fail. No governance mechanism of any kind. Anonymous team with unilateral control.

Question 5: Tokenomics?

Rating: Critical fail. The token's only "utility" was participation in a game that did not exist. The anti-sell mechanism meant the token had no functioning market. The supply was concentrated in deployer-controlled wallets.

Question 6: Funding and Incentives?

Rating: Fail. No disclosed funding. Anonymous team. No verifiable track record. The team's incentive was transparently to accumulate as much BNB in the liquidity pool as possible and then extract it.

Question 7: Audits?

Rating: Fail. No audit. No bug bounty. No security review of any kind.

Question 8: Track Record?

Rating: Fail. Zero track record. The project was less than a week old.

Question 9: Regulatory Risk?

Rating: Extreme. Unauthorized use of Netflix's intellectual property. No KYC/AML compliance. Operating in multiple jurisdictions without any legal entity.

Question 10: Success Conditions?

Rating: Not applicable. This question is irrelevant because the project was never intended to succeed as a product. It was designed from the beginning as a mechanism for extraction.

Red Flags Triggered

From the chapter's 20-item red flag checklist, SQUID triggered at least 14:

  1. Anonymous team with no verifiable track record (#1)
  2. Unverifiable credentials — no credentials presented at all (#2)
  3. No code repository (#3)
  4. Locked community discussion (#4)
  5. Unverified contracts on block explorer (#5)
  6. No audit (#7)
  7. No clear token utility beyond speculation (#12)
  8. Hype-driven marketing with little substance (#13)
  9. Artificial urgency (#15)
  10. Unusual concentration of holders (#16)
  11. No working product (#17)
  12. Copy-pasted whitepaper elements (#19)
  13. The "absolute deal-breaker" combination: anonymous team + unverified contracts + unrealistic mechanics
  14. Anti-sell mechanism (a variant of honeypot, beyond the standard 20 flags)

The project triggered the "absolute deal-breaker" combination (anonymous team, unverified contracts, and a structure that could not possibly deliver sustainable returns), plus ten additional red flags. By the framework's standards, this should have been classified as an obvious scam from day one.

Why People Invested Anyway

If the red flags were so visible, why did thousands of people invest? Understanding the psychology is as important as understanding the mechanics.

Cultural momentum. The Squid Game series was the most-watched Netflix show of all time at that point. The cultural moment created emotional resonance that bypassed rational analysis. People did not evaluate SQUID as a crypto project; they evaluated it as a cultural experience they wanted to participate in.

Social proof. As the token's price rose, social media filled with posts celebrating gains. This created a feedback loop: rising prices attracted attention, attention attracted buyers, buyers drove prices higher. Each new buyer validated the previous buyers' decision, creating an illusion of collective wisdom.

FOMO (fear of missing out). The price appreciation was so extreme that potential buyers felt they were "missing out" on a once-in-a-lifetime opportunity. The urgency of FOMO overrode the caution that the red flags should have prompted.

Mainstream media amplification. When CNBC and the BBC report on a token's spectacular price rise, it confers a degree of legitimacy — even when the reports include warnings. Many buyers encountered the token through mainstream media and assumed that if it were a scam, it would not be covered by reputable news outlets.

Crypto literacy gap. Many SQUID buyers were new to cryptocurrency. They did not know how to read a smart contract, check token holder distribution, or evaluate tokenomics. They did not have the framework this chapter provides. They were operating on narrative and social proof alone.

The "it can't happen to me" bias. Even among more experienced crypto participants, some believed they could "get in and get out" before the rug pull. They acknowledged the risk but believed they could time their exit. The honeypot mechanism made this impossible — they could not sell even if they wanted to.

Lessons for the Evaluation Framework

The Squid Game Token case reinforces several principles from the chapter:

1. The 15-minute check would have caught this. Checking the contract verification on BscScan (not verified), checking the token holder distribution (concentrated), searching for the team (anonymous), and checking for audits (none) would have taken less than 10 minutes and would have revealed enough red flags to justify walking away.

2. Price action is not evidence of quality. A token rising 28 million percent does not mean it is a good project. In a honeypot, price can only go up (because no one can sell), which creates the illusion of organic demand. Price is especially unreliable as a signal for newly launched tokens with low liquidity.

3. Cultural relevance is not a moat. Exploiting a cultural moment (a popular TV show, a viral meme, a trending topic) is a marketing strategy, not a business model. Projects built on cultural moments have no sustainable competitive advantage once the moment passes.

4. The anti-sell mechanism was the critical technical tell. Of all the red flags, the honeypot mechanism was the most definitive. A token that cannot be sold has no legitimate reason to exist. Any experienced evaluator who checked whether the token could be sold — by attempting a small test transaction or by examining on-chain sell activity — would have immediately identified the scam.

5. Mainstream media coverage can be harmful. The media's tendency to lead with spectacular price action rather than fraud warnings actively contributed to the scam's success. This is not an argument against media coverage — it is an argument for evaluating projects based on fundamentals rather than headlines.

Aftermath

Following the rug pull: - Multiple class-action lawsuits were filed, but with an anonymous team and no legal entity, enforcement was essentially impossible - Several crypto analytics firms and media outlets published post-mortem analyses identifying the red flags - The case became a widely-cited example in discussions about investor protection and the need for crypto literacy - Netflix took no legal action regarding the unauthorized use of the Squid Game brand, likely because there was no identifiable defendant - The BscScan page for the SQUID token contract remains accessible, serving as a permanent on-chain record of the scam

The Squid Game Token case is not unique in its mechanics. Rug pulls with similar structures occur regularly in the crypto ecosystem, particularly on low-cost chains (BNB Chain, various EVM chains) where launching a token costs only a few dollars. What made SQUID notable was its scale and its visibility. The mechanics — anonymous team, honeypot contract, cultural hook, social media amplification, liquidity drain — are a template that has been replicated hundreds of times.

The defense against this template is the evaluation framework presented in this chapter. Applied honestly and consistently, it would have identified SQUID as a scam before a single dollar was invested.

Discussion Questions

  1. Several mainstream media outlets reported on SQUID's price rise before the rug pull. What responsibility, if any, do media organizations have to evaluate crypto projects before reporting on their price performance? Should news outlets be expected to apply technical analysis to tokens they cover?

  2. The honeypot mechanism was visible on-chain — anyone who checked would have seen that no one was selling. But most buyers did not check. What kind of infrastructure or tools could make this information more accessible to non-technical investors? Should DEX front-ends warn users about tokens with no sell transactions?

  3. The team was never identified. Is there a case for requiring KYC (know-your-customer) verification for anyone deploying a token contract on a DEX? What would be the trade-offs of such a requirement?

  4. Some buyers acknowledged the risk but believed they could sell before the rug pull. The honeypot mechanism made this impossible. How does the existence of honeypot contracts change the risk calculation for "get in, get out" trading strategies?

  5. The Squid Game Token exploited a cultural moment (a popular Netflix series). Can you identify other crypto projects that have exploited cultural moments (meme tokens, tokens named after celebrities, tokens tied to trending topics)? How do you distinguish between a legitimate project with cultural relevance and a scam exploiting a cultural moment?

  6. If you had been advising a friend who was excited about SQUID on October 28, 2021 (three days before the rug pull), what specific evidence would you have shown them to convince them not to buy? Frame your argument using the 10-point framework.