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Users purchase NFTs in anticipation that, like Bored Apes Yacht Club, their price may increase one day by ten or perhaps one hundred times. But these expectations frequently come to nothing as the project turns out to be a “rug” or a fraud. We’ll offer some advice to help you avoid these scams as NFT rugs become increasingly prevalent.
How does NFT rug pulls work?
A rug pull is a scam where the perpetrators draw in a sizable user base and liquidity before pulling the rug out from under them and taking the money with them.
Rug pulls have the peculiar characteristic of putting a lot of work into making the project look attractive. The charade can last for a long time — until the token price has increased enough or the entire NFT collection has been sold out.
Serial rug pullers aren’t looking to make quick cash; instead, they’re willing to put in months’ effort to create buzz, foster a sense of community, and spend money. They make significant investments to steal much more. Because of this, it may be challenging to tell a rug pull from a legitimate project.
Rug pulls have their roots in decentralized exchanges, where criminals lure customers into depositing liquidity in a trading pool before utilizing a security flaw in intelligent contracts to withdraw the liquidity. With NFTs, though, you don’t need a security hole—all you need to do is make sure that people buy the NFTs and pay you the money. After that, you can leave the area.
The two types of NFT rug pull quickly and slowly:
- A traditional quick rug happens abruptly when the devs just shut down the website and Discord.
- A sluggish pace suggests that although the creators are still sending out updates and interacting with people in Discord, their communications are becoming less frequent. Users the staff reassures voice worries that it is diligently working on the project’s next phase, or those who propagate “FUD” are blocked (fear, uncertainty, and doubt).
Two recent NFT rug pulls
A group of Pokemon-like animals known as Animoon promoted themselves as “the most-anticipated” Play-to-Earn NFT game. The project made partnerships with businesses that had experience working with real Pokemon; however, that was untrue. The collection allegedly included hidden cards that would perpetually produce a passive income of $2500 each month.
Collaboration with well-known YouTuber Jake Paul, who has recently developed an interest in NFTs, was crucial to Animoon’s success. He constantly promoted Animoon to his supporters, claiming he would mint numerous NFTs.
Jake Paul’s supporters helped Animoon raise $6.3 million by selling NFTs for nearly $350 each. The developer erased the website and the Twitter account instead of releasing the P2E game as promised.
The takeaway is that you should refrain from believing YouTubers who promote products because they will only do so if paid. A project with a well-known name attached promises nothing. Additionally, avoid NFT collections that capitalize on famous visual narratives like the Pokemon; as these are simple to manufacture, scammers frequently use them instead of creating original artwork.
The Rogue Society
This situation differs since the Rogue Society’s artwork was original and of excellent quality. Additionally, the crew maintained a conversation with the consumers for many months while failing to provide promised features like NFT airdrops and official products.
Crypto The Rogue Society’s creator stole about $3.4 million of the $5.5 million gained from the sale of NFTs, according to Twitter investigator ZachXBT. Ironically, Rogue Society’s team unexpectedly returned to Discord and posted an update following his Twitter message.
How to recognize NFT rug pulls?
Sadly, there is no foolproof way to tell a quality NFT endeavour from a rug pull. NFT rug can collaborate with well-known influencers, have beautiful NFT art, and have a sizable audience that is genuinely enthusiastic about the mint. In other words, a quality rug has the same appearance and texture as an actual project.
Additionally, the creators of many NFT collections initially intended for them to continue as active projects. However, when issues arise (market correction, declining floor price, little interest, no sales), the team loses hope and lacks the will to persevere. At this point, the most straightforward course of action is to go with the cash left of the sale quietly.
A rug pull is an intentional ploy to entice customers to purchase an NFT. After the con artists have profited, they forsake the brand and its customers abruptly and without warning. Lack of execution and dedication to brand development is the most typical indication of a rug pull.