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How to Avoid NFTs and Rug Pulls

Published on
June 22, 2022

How to Avoid NFTs and Rug Pulls

Malicious attacks do not exclude NFTs. Find out how to defend yourself from the devastating wave of NFT rug pulls.

Preventing NFT rug pulls

Markets undergo constant change, and since their beginnings, NFTs have assumed several different shapes and forms. Unfortunately, despite the unquestionable expansion, this cryptocurrency industry has been plagued by various con artists looking to take advantage of fresh competitors with their money-grab projects. This article will teach you how to recognize NFT rug pulls and how to prevent becoming a victim.

NFT Rug Pulls: What Are They and How Do They Occur?

In its most basic definition, a rug pull refers to a company exit scam in which the project's founders or lead developers split with investors' money following fundraising. These founders frequently present investors with alluring intentions but fail to carry them out or assist in generating returns on their investments. The squid game token rug pull, which left millions of players in despair after the founders stole up to $3 million in customers' cash, is a recent example of a rug pull fraud that is common in the cryptocurrency world.

Rug pulls can happen in a variety of ways for NFTs. The first is that these projects might offer presales of their NFTs, along with lofty claims that they are the finest of the best and set release dates. After the tokens are minted, expected outcomes include:

  • Dumping: When the buzz is at its height, the founder dumps their stock and disappears. As one might anticipate, prices will eventually drop, leaving unwary traders with illiquid assets. Some people can acquire up to 40% of the NFT collection.
  • Hard rugging is the practice of developers entering code into smart contracts to block NFT holders from selling or establish a backdoor that only the developers may use to sell their tokens.
  • To boost the price of NFTs by pumping an alternative coin, the developers can pair them with that coin and then remove liquidity.

NFT Rug Pulls Warning Signs

Early warning signs like the following are frequently present in NFT rug pulls:

  • Anonymous Founders: The idea of anonymity in cryptocurrency firms is still debatable, but it is usually better to set up camp with reputable and well-known entrepreneurs. Since no one can challenge them or help them pursue legal action if things go wrong, anonymity may make them more susceptible to rug pulls. As a supporter of NFT, you should carefully examine all the accessible social media channels and websites to confirm that the founders' names are genuine and not merely aliases.
  • Unclear Plans: A project that intends to last for a long time must meet a certain quality standard. In their white papers, many NFT rug frequently lacks clear ideas and sometimes even include plagiarized ones. Any project with a white paper only seeks to entice people; a white paper is designed to be more than a promotional sheet. The use cases, tokenomics, and benefits should be emphasized further, and graphs and statistics should support the assertions.
  • Social Media Engagement:  With the simplicity of purchasing bots and sponsoring content through paid influencers, social media engagement has multiple facets. However, it would help if you first kept in mind that projects that would last the test of time endeavor to produce high-quality work, often request and review feedback, and minimize errors. Consider a project that has a sizable telegram and discord following but only receives moderate engagement, excluding the traction that comes with the promise of whitelists and other benefits. In that case, you ought to be cautious around them.
  • Liquidity:  The amount of money invested in a project may be another indication of its reliability or rug pull. In general, you need to look at the amount, the length of time it has been there, and the tokens' ownership %. It is also a positive sign if the liquidity is locked. Good initiatives consider years rather than just weeks or months.

In conclusion

The key to preventing NFT rug pulls is to exercise caution and watch for early warning indications. As a result, you should always do your homework before investing in any project.

Investing in verified projects like MonsterArmy will thankfully help you avoid rug pullers.