Two Collapses, Two Very Different Stories
January 2026. A Solana derivatives project called Trove Markets raised more than $11.5 million in a token sale — over four times its $2.5 million target — and said it would keep $9.3 million to build its platform. On launch day, the token appeared on a different network than investors expected, and the developers allegedly pulled about $2.5 million in liquidity within minutes. The token fell 98%. Investors got no refunds, and at the time of reporting the project had posted nothing since.
Also January 2026. A crypto custody start-up called Entropy concluded it couldn’t reach commercial scale. Its founder shut the company down and returned $27 million of remaining capital to investors.
Both ended in failure. Only one looks like theft.
Crypto has had both kinds of collapse in large numbers this year. Dozens of projects shut down in the first quarter of 2026 alone as funding and liquidity dried up. Knowing which kind you’re looking at changes what you can expect, who you report to, and how you avoid the second scam that often follows the first.
Four Kinds of Collapse
1. The rug pull. Insiders deliberately extract value and disappear: pulling liquidity, dumping tokens they hold or can mint, or draining contracts through admin keys. The collapse is the plan.
2. Fraud over time. The project runs for months or years on misrepresentations — about reserves, risks or performance — until reality catches up. Terra is the defining example: it wiped out about $40 billion in 2022, and in December 2025 its founder Do Kwon was sentenced to 15 years in prison after pleading guilty to wire fraud and conspiracy to defraud.
3. Honest failure. The product didn’t work, the market turned or the money ran out. The team communicates, winds down in an orderly way, and returns what it can.
4. The grey zone. Reckless risk-taking, undisclosed deals with market makers, insiders selling into rallies, poor disclosure. Not necessarily criminal, often not fully honest, and the hardest category to judge.
Before the Collapse: The Warning Signs
Most of the signs that predict a rug pull are visible before you buy — who controls the liquidity, who can mint tokens, how much insiders hold and when it unlocks. We cover them in detail in our guide to exit liquidity scams. Related: Exit Liquidity Scams Explained | How to Spot a Rug Pull
Two patterns from 2025 and 2026 deserve adding:
- A raise that massively overshoots its target, with the team keeping the excess. That’s what happened with Trove. Oversubscription is a reason for a team to cap or refund, not to keep everything.
- Last-minute changes to how a token launches — a different chain, a different date, a different venue. Each change resets the rules investors relied on.
During the Collapse: Reading the Signals
When a token is falling fast, look for evidence rather than reassurance.
| Signal | Points towards a rug | Points towards a failure |
|---|---|---|
| Who moved first | Team or insider wallets sold or pulled liquidity before the crash or any announcement | Insider wallets unchanged, or selling only after a public announcement |
| Liquidity | Pool liquidity removed by a project-controlled address | Liquidity drains as holders sell |
| Contracts | Admin functions used to mint, pause selectively or move treasury funds | Contracts paused openly to protect users, with an explanation |
| Communication | Silence, deleted channels, vague statements | Specific timelines, incident reports, named people |
| Explanation | Blames “market conditions” without detail | Explains exactly what failed, with evidence others can check |
| Third parties | No independent confirmation | Security firms, auditors or exchanges confirm the account |
On-chain records make the first three rows checkable. Block explorers show which wallets sold and when, and investigators usually publish their analyses within days.
After the Collapse: What an Honest Wind-Down Looks Like
- A clear timeline, published well in advance
- Time to withdraw or export. When the NFT marketplace Magic Eden wound down parts of its business in early 2026, users were told to export their assets and wallets before the wallet went export-only.
- Remaining money returned. Entropy returned $27 million to investors. Protocols with treasuries can offer redemptions.
- A post-mortem explaining what went wrong
- People who stay reachable and accountable
A rug pull tends to look like the opposite: silence, deleted channels, funds routed through mixers — and, frequently, an invitation to a “V2 migration” or “relaunch” that asks you to send your remaining tokens somewhere.
The Grey Zone
Some collapses don’t fit cleanly into any category.
Mantra (OM), April 2025. OM fell about 90% within hours, erasing billions in market value. The team blamed forced liquidations on centralised exchanges and denied that insiders had sold. Many in the community remained sceptical.
Stream Finance, November 2025. The project disclosed that an external fund manager had lost about $93 million and froze withdrawals. It also faced allegations of an undisclosed fee and acknowledged it hadn’t been transparent about how its “insurance fund” worked. A law firm was appointed to investigate.
LIBRA, February 2025. After a high-profile endorsement, an entity tied to the token’s creator reportedly removed about $99 million in liquidity, while traders lost more than $250 million.
The useful point is this: you don’t have to decide whether it was a scam to decide what to do next. Your next steps are almost identical either way.
What to Do If You’re Caught in a Collapse
- Send nothing to anyone. Not to “migrate” tokens, “claim a refund”, “unlock” a withdrawal or pay a “recovery fee”. Collapses attract a second wave of scams aimed at the people the first one hurt.
- Document everything now. Transaction hashes, wallet addresses, screenshots of the website and announcements, and your purchase records. Websites and social accounts disappear.
- Revoke approvals you gave the project’s contracts, using a revoke tool you reach by typing the address. Related: Revoke Day: The 10-Minute Quarterly Crypto Security Audit
- Report it. In the Netherlands, report to the police and the Fraudehelpdesk (fraudehelpdesk.nl). If the project marketed to EU users, tell the AFM. Also report it to the exchange where the token traded.
- Be wary of “recovery” services and lawyers who want large fees up front. Genuine collective legal action exists, but cold approaches promising to recover your crypto are overwhelmingly scams. Related: Your Crypto Was Just Stolen: What to Do in the First 24 Hours
- Keep records for tax. In the Netherlands, Box 3 is based on what you hold on 1 January, so a collapsed token simply counts at its lower value. In many other countries, a loss can be declared against gains. Related: Crypto and Dutch Tax: How Box 3 Works — and Why 1 January Matters
Frequently Asked Questions
Is every token that goes to zero a rug pull?
No. Many projects fail honestly — the product doesn’t work or the market moves on. The difference is intent and conduct: whether insiders extracted value, and how the team behaved.
Can I get my money back after a rug pull?
Rarely. Occasionally funds are frozen by exchanges or recovered by law enforcement, but most victims recover nothing. That’s exactly why recovery scams are so effective, and why you should never pay anyone up front to recover crypto.
How can I check who sold first?
Block explorers show every transaction. Look at the wallets that received the largest early allocations and see whether they sold before the collapse. Independent on-chain investigators often publish this analysis within days.
The team says a hack caused the collapse. How do I know?
Look for an incident report with transaction details, confirmation from independent security firms, and evidence that the team is co-operating with investigators. Hacks are real and common in 2026 — but “we were hacked” with no evidence is also a classic cover story. Related: Flash Loans, Oracle Attacks and Bridge Hacks: How DeFi Gets Drained in 2026
Does it matter legally whether it was a rug pull or a failure?
Yes. Fraud can lead to prosecution and, sometimes, partial restitution. An honest failure usually leaves only whatever the wind-down or insolvency process returns. Either way, document and report.
Transparency: TrueToCrypto may earn affiliate commissions from links in articles; this article contains none. This article is educational and is not legal or financial advice. Descriptions of specific projects are based on published reporting; where claims are disputed, we say so.
Contact: info@truetocrypto.com
Sources: ForkLog (January 2026) on Trove Markets; Coin360 (6 April 2026) on 2026 shutdowns including Entropy and Magic Eden; Cointelegraph (11 December 2025) on Do Kwon’s sentence; Yahoo Finance/Decrypt (November 2025) on Stream Finance; Benzinga (February 2025) on LIBRA. Verified October 2026.
