Scams in the crypto space are not an unusual occurrence, to say the least. It’s no surprise that soon following the rise of NFT in 2020, there emerged rug pull scams targeting NFT lovers.
It’s also not strange that it’s “hamsters”, or crypto newbies, who most often fall prey to these scams. In this article, we’ll see just what NFT rug pulls are, and discuss common mistakes that beginners make and how to stay on the safe side while enjoying the colorful NFT market. Let’s get to it!
What are NFT rug pulls?
In short, an NFT rug pull happens when project creators all of a sudden stop backing it after they’ve sold enough NFTs to fill their pockets. They withdraw all the funds supposedly meant for project development into their private wallets and disappear into the night, never to be heard from again.
The consequence of this move is that the price of those NFTs rapidly drops to zero – not a good situation to be in for collectors.
There have been a few rug pulls in the past few years. The most notable ones include ice cream cartoon characters Frosties (scammers took off with some $1.3 million), Bored Ape ripoff named Big Daddy Ape Club (also $1.3 million), and “3D artwork in promise but your regular emojis in practice” Iconics project (“just” $140,000).
And we can safely assume there’ll be other scams with similar profits for fraudsters in the future. Therefore, keep reading.
How to detect NFT rug pulls
With enough experience and rug pulls occurring, the NFT community has noticed some patterns. Newbies lacking experience in spotting rug pulls, but other buyers as well – this is what to do to reduce risk when dealing with NFT projects greatly:
Checking NFT project activity
Safe brands like Cryptopunks or Bored Apes are always updating their projects and bringing additional value to them. As an example, the Apes did a collab with Adidas just recently in December, demonstrating serious dedication.
It’s imperative for you to do this regularly. Is the project transparently conducting operations and reaching milestones from its roadmap or whitepaper? Is there even such a roadmap/whitepaper? Are they following through with planned giveaways? (Sometimes, scammers may neglect giveaways completely even before the actual minting.)
With due diligence, you may even notice that the flow of information had stopped before the rug was pulled – any sudden lack of communication or updates is quite alarming, and may indicate you should get out now.
Errors & inconsistencies in project’s online presence
Analyze the official website, social media pages, community forums, or any related articles you come upon. Apart from bad press and opinions, you’re looking for errors and inconsistencies.
For instance, if the website appears as if not a lot of work was put into it, is riddled with spelling mistakes, and runs slowly – then something’s not right. Do have in mind, though, that scammers may actually put a lot of work into setting up their website, so high-quality sites don’t necessarily equate to trustworthy projects; but lousy ones should always set the alarm ringing.
Another common red flag is the discrepancy in the number of followers on different social media. It may happen, for example, that a project has a huge following on Discord but a low one on Telegram or Twitter.
Researching the founding team
Most often, the teams behind these scams are anonymous or concealed behind pseudonyms. And Google is our friend in finding the team members’ (fake) identities. What you’re looking for are past projects they’ve worked on (or, alarmingly, haven’t). Their LinkedIn pages, posts, connections, and reviews will also tell you a good deal about their credibility.
To be fair – an anonymous team is not a guarantee of fraud, but it is a good indicator and, as a rule, such projects are riskier.
Avoiding FOMO
As always in Web3, hype and the fear of missing out can be a buyer’s worst enemies. And with NFT rug pulls, scammers tend to promise high rewards for low investments, driving the hype up.
Don’t let it get to you; in fact, be especially vigilant when such promises are made, as they stink of scam. It’s a general rule – emotions should never get in the way of facts and solid research, as discussed above.
Using reputable platforms
Be careful as to the NFT platforms you use to make purchases. Big-name marketplaces with trustworthy reputations take great care in providing adequate security. They include: OpenSea, Rarible, Binance NFT, Nifty Gateway, and SuperRare. Sure, they may also suffer security breaches, but that’s unavoidable in this sector.
Platforms that haven’t been sufficiently tested by the community may not have proper security measures in place and are easier for scammers to pass unnoticed. If a project insists on such a platform, it’s a sign it could be a scam.
Staying safe in the NFT market
All in all, some risk is a given here and NFT rag pulls can be highly thought-out and impossible to detect, but it happens rarely. It shouldn’t detract a true NFT enthusiast, no matter their level of experience.
It’s because, even if you are an NFT hamster, it doesn’t mean you must be naive. And with our tips and sufficient time investment on your part in looking for red flags – you won’t be. So, DYOR and happy NFT trading!
