NFTs have always been in the thick of rug pulls, and Ponzi schemes like you’d imagine anything related to crypto to be. Personally, though, I believe NFTs are at a greater risk of being perceived negatively by the public. This probably has to do with their inherently playful and fun vibe, something you would never associate with an investment vehicle.
That said, several measures you can take as a project to ensure your NFTs find favor with investors. This article will walk you through them in an easy-to-understand fashion. So with that said, let’s get right into it.
Most Common NFT Scams
Before we get to the crux, looking through some of the most common tactics used by NFT scammers would help.
Phishing Fraud
Scammers often ape the website layout of popular crypto brands onto theirs. However, in the context of NFTs, the scammer employs a front end almost inextricably similar to a top name like OpenSea’s. This website serves as a means to take control of the investor’s private key and gain unsolicited ownership of the NFT. Investors may be led to such websites in many ways: phony advertisements, emails, and pop-ups.
Rugpull
Typically such scams are orchestrated by people with a high social following. In essence, unsuspecting investors are wooed toward NFT projects with bad fundamentals and no clear roadmap, promising high returns in the future. Then, when the market value of the NFT reaches its peak, the largest shareholders of the NFT sell their holdings to book profit. So naturally, this sends its market value to fall to zero.
Airdrop
Scammy NFT projects might airdrop free NFTs at the wallet addresses of those who spread the word about their project. Once they complete the task, investors are asked for their wallet information which grants scammers access to their holdings.
Counterfeit NFTs
Some NFT projects also resort to selling NFTs worth less than the ones the investors paid for. Fundamentally, the scammer sends an NFT with the same image as the original one except for its token ID; thus, the associated metadata is different.
Top NFT Scams
Jacked Ape Club
A rip-off of the original Bored Ape Yacht Club (BAYC), Jacked Ape Club had plans to launch 8,888 NFTs. However, when it had sold 3,200 of its NFTs, the project owners claimed the project had sold out all its NFTs. But the truth was it had only sold 3,200 of them. The owners had siphoned off $1.4 million worth of tokens from the project funds into their wallets, leaving only $590.
Atom Protocol
Despite getting a validation certification from Assure for KYC, Atom protocol ghosted its investors after getting the rug pulled by the project owners. This goes on to highlight that not every NFT auditor is the same. Therefore, investors should always conduct proper due diligence of the auditor before trusting their verification.
Tekika NFTs
This project, launched on Magic Eden on Solana, had gathered much steam for its aesthetics. Naturally, therefore, it succeeded in luring many investors who were into anime. Soon enough, though, the project leaders vanished into thin air, and so was the project’s Twitter handle.
Lana Rhoades NFTs
Lana Rhoades, an adult film actress, had launched an NFT project called CryptoSis. Given her social currency, the project raised capital very quickly, and before anybody could know it, Lana Rhoades disappeared with reportedly $1.8 million from the project funds. Since then, Lana Rhoades has deleted her Twitter account and continues denying the project was a scam.
Why NFT Auditing?
The traditional economic ecosystem has a strong culture of due diligence. This is reflected by the level of influence the accounting firms such as the Big 4 have. Any business has to be verified by these firms to be perceived as safe. The public’s trust in the ecosystem is maintained through such players. Until a long back, the NFT ecosystem lacked such “strong players, ” further weakening public confidence. That’s where projects such as CertiK Security, ImmuneBytes, etc., come in. You might as well say that these projects have a critical role in growing mainstream NFT adoption by making it easier and safer to invest in.
Ways To Stay Safe
- It would help if you never kept the project’s founders anonymous; otherwise, the more cautious and risk-averse investors might avoid you, fearing rug pulls. Additionally, it’s also easier to raise VC funding for your project when you’re public.
- As a project to appear safe, you want to get your smart contracts audited by a top NFT auditor. However, you want to make sure that the auditor itself is a trusted name in the industry. Else, you may land yourself in a situation like the Tekika NFT projects.
- Related to smart contracts, you should also ensure that your codebase for the smart contract is as transparent as possible. However, it doesn’t end at just being open source. It would be best if you also made an effort to make the smart contract ABIs readily available for contract decoding by prospective investors.
