The Biggest NFT Rug Pull 

by Rohan

 Scams have become very common in the NFT community. Even the most experienced veteran may fall prey to the NFT scams. Since as early as 2017, they have been a problem for investors and authorities. But NFT Rug Pull is a rather new form of fraudulent action. 

NFT Rug Pull is a malicious and dishonest practice in which cryptocurrency developers persuade early investors and subsequently abandon the project after receiving funds or sell all their pre-minted NFTs with the goal of syphoning out all the money from investors and take the additional profit. 

In order to generate demand, NFT developers  perform a NFT Rug Pull by creating a buzz about their NFTs. Then the developers entirely give up on the project and any accounts connected to the project once investors invest in it and they have made their money.

NFT rug pulls caused more than $2.8 billion worth of losses in 2021, according to Chainalysis. This represents a 1 percent increase from 2020 and represents 37% of the total revenue from cryptocurrency scams for the year.

The act of dragging a rug out from beneath someone is where the phrase “rug pull” got its start. In the same line as “pulling a fast one” or “pulling the wool from your eyes,” the phrase has been used for years in a variety of circumstances. It merely meant to defraud someone of their money or possessions. The word was first coined by the cryptocurrency community to describe the myriad scams that characterized the business between 2014 and 2017, and it has since spread to the NFT environment. Many NFT collections begin as genuine endeavors, and their creators don’t initially have any plans to disappear. However, when issues arise (market correction, declining floor price, little interest, no sales), the team loses hope and lacks the will to persevere. The easiest course of action at this point seems to be to quietly go with what is left of the sale cash.

NFT Rug Pulls: Are They Legal?

Yes and also no! 

Soft Rug Pulls are considered as not illegal but hard rug pulls are considered as illegal. 

Hard rug pulls, which can take place when a project’s founder intentionally utilizes the project as a tool to mislead investors by using coding, are wholly prohibited. In this instance, the smart contract has concealed clauses in its code that are intended to deceive investors and steal money. The code is prima facie proof of the intention to defraud investors and steal their money, usually by locking them into an asset with no real direction or purpose. On the other hand, soft rug pulls are regarded as being extremely unethical even though they are not by definition “illegal.” They are different from a hard rug pull in that the smart contract code leaves room for the possibility of theft or investor fraud while not being specifically designed to mislead investors.

NFT Rug Pulls in the histories : 

The cryptocurrency, built by an anonymous team and named after the popular Netflix series Squid Game, saw exponential growth, with each token going from virtually nothing to a stunning $2,861 per token. When the token was performing at its peak and more than 43,000 investors had invested money, the website was taken down and the promoters were rendered unreachable. The liquidity abruptly disappeared, driving the token’s value to almost nothing as the developers made off with more than $3.3 million. In 2021, another significant crypto rug pull took place with the development of Luna Yield, an ecological liquidity farming initiative on Solana. The experiment abruptly ended once the total locked value reached $2 billion. After erasing their website and social media accounts, the engineers made off with around $10 million in liquid assets. OneCoin is a well-known crypto rug pull and Ponzi scam that was introduced in 2014. The fake developers of the cryptocurrency, which was advertised as such, profited $4 billion from the swindle worldwide. Big Daddy Ape Club stands out as one of the most devastating rug pulls in the history of the Solana blockchain. Project developers typically give some NFT art as part of rug pulls before fleeing with the money. Not so with Big Daddy Ape Club, a project that was able to mint its NFTs after collecting 9,136 SOL, or almost $1.3 million at the time. However, those NFTs were not even real. The project’s Discord was locked by Big Daddy Ape Club, which later shut it down. Shortly after, the project’s website and Twitter account vanished. The NFTs that investors paid for never materialized. 

How to avoid NFT Rug Pull : 

  • Take a look at the objectives of the project. The goal is to make sure the founders keep their commitments, such as through gifts or giveaways. 
  • Try to avoid fake follower engagement  and the hype. Social networking is another useful tool for spotting rug pulls. A warning sign is when a social media platform has a little following on Twitter but a huge following on Discord or Telegram. Influencers could be paid to promote the initial hype, expensive gifts could be given away to them, and other strategies could be used.
  • Do spend some time in the community before investing. Observe the environment. 
  • If the developer is anonymous and employing a pseudonym, LinkedIn and more than the first link that appears when searching the developer’s name will probably reveal this.
  • Another big red flag is a website full of errors and glitches. It’s unlikely that a project would live up to its promises if it has misspellings and a slow website.
  • Before making any decision you could later regret, you should always examine and double-check the legitimacy of an NFT collection.

Conclusion : 

It’s absolutely acceptable if an NFT project doesn’t feel right to you. In the end, it’s not just about the money; it’s about your life, so resist the urge to acquire anything you don’t feel comfortable with. You have the authority to exercise your own judgement and object. Not all that glitters is gold, though. Not all NFT promotional videos are genuine. The first step in preventing such scams is to understand how they operate. Although there will always be some danger associated with NFTs, learning to spot warning signs of fraud will significantly lower that risk and keep your finances and NFTs secure.

Read More: 10 BEST CRYPTO DISCORD SERVERS IN 2022

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