The Biggest NFT Rug Pulls in History: How to Identify Crypto Scams

Sometimes, people invest money in a promising and attractive project. It takes a lot of time to check it for safety, thus some people invest at their own risk. The assets seem to grow in price at an enormous rate. But their value drops to zero at some point, and the developers disappear and do not get in touch.

This phenomenon is called a rug pull. In such schemes, the project team abandons the project and disappears with all the investors' money before the fraud is revealed. Previously, this was common mainly in the cryptocurrency market, but fraud cases have become more frequent in the NFT sphere. In the article, I will tell you how to identify a rug pull and not fall into scammers' hands.

How a rug pull works with NFTs

Developers create hype, for example, through celebrity ads and giveaways.

Sometimes the project can “close” in one day, and sometimes it happens gradually: social networks stop updating, and later all accounts get deleted.

There are two ways that scammers use in NFT sphere:

• to get as many investments from investors as possible and run away with them;
• to raise the value of NFT assets using artificial hype. Then sell all of their pre-issued NFTs before they lose liquidity and become worthless.

Here are some examples of NFT rug pull

Iconics — investors lost $140,000. The NFT collection was created by an unknown 17-year-old designer on the Solana blockchain. He promised the investors unique 3D images in a total of 8,000 pieces. The artist showed the first 14 samples on his Discord channel.

The audience liked the concept, and the project launched pre-sales for circulation of 2000 pieces at 0.5 SOL each. However, after the alleged NFT release, the investors received not unique artwork, but a set of random emojis on the wallet. By this time, the Twitter account, and the Discord chat had been closed.

Frosties NFT — investors lost $1.3 million. The Frosties project became the first NFT rug pull in 2022. The project team promised the investors the functions of staking that would allow them to receive part of the income, access to the Metaverse, and some other benefits.

But after they sold 8,888 “ice cream” NFTs, the investors found out that all of the social media, Discord channels, and website had closed, and the dev team had disappeared. The investors have never returned their money.

Baller Ape Club — investors lost $2 million. The project consisted of 5,000 NFTs for 2 SOLs each. These were other NFTs with monkeys. The creators were inspired by the famous Bored Ape Yacht Club collection and tried to win the trust of the investors on the name and similarity to the original.

After the public release of the NFT and the receipt of the investors' money, the creators deleted all social networks and accounts, as usually happens in the case of rug pull. At the time of the sale, the total value of the assets reached $2 million. The investors have never returned the money.

Fake Banksy NFT — investor lost and found $336,000. Banksy is a well-known street artist from the UK. He has a website where he shows his works. Once a well-known NFT collector Pranksy saw in Discord a link to Banksy’s website page, which informed about the NFT auction.

The page was selling a piece called “Great Redistribution of the Climate Change Disaster”. Pranksy decided to outbid and gave away $336,000 in total. Shortly thereafter, all traces of the NFT auction disappeared from the site. However, after some time, Pranksy said that the money was returned to his wallet.

Four Essential Steps to Recognize a Rug Pull Pattern

First of all, you need to study the NFT project carefully before you invest in it. Listing.Help analysts recommend spending at least 60 hours of research before entering a project.

Look at the project goals and roadmap. It is a specific plan of action and event according to which the project will develop. The task of the creators is to convince investors of its prospects. If an unknown team promises quick collaborations with popular brands and metaverses, it is a reason to doubt and check everything more carefully before investing money.

Study the team behind the NFT project. If there is no information about the team, it is the first red flag, and it is worth checking the project more carefully. Usually, if developers want to deceive investors, they will try to hide their real identity behind pseudonyms.

\Even if there is a team, it is not a guarantee of security. Check out these people on social media and LinkedIn. Look at their background - do they have any completed and successful projects, experience in art and NFT, or they came out of nowhere.

Check activity and subscribers in social networks. The main social media where you can find NFT projects are Twitter and Discord. If the number of followers on Twitter is much lower than it is on Discord, this may mean that the team is running bots to create artificial interest.

Pay attention to the quality of the content. The content in the social networks should not only talk about the incredible success that awaits investors. They should talk about the idea of ​​the project, how the project will develop, and what they are doing for this. It can also contain utility information and technical documentation that adds credibility to the project.

Only a third of the content should promise asset growth, sweepstakes, and gifts, as well as cool collaborations with influencers and media people. Fraudsters will not care about making interesting content and giving valuable information to readers.

The growth of fraudulent schemes is often contributed by people who are looking for easy and fast money. While the NFT market is a set of scattered marketplaces, security issues fall on the investors themselves. If they know how rug pull schemes work and how to detect them, they will be able to protect themselves from investing in a loss-making token. And the lower the demand for garbage projects, the more transparent and safer the NFT market will become.

Lead image via blog.cryptostars.is