The year 2021 saw the NFT (Non Fungible Token) craze go through the roof. However, the start to the year 2022 was not as upbeat. 

The first major NFT ‘rug pull’ of 2022 was recorded early in January, and saw the value of 8,888 Frostie NFTs go down to almost zero, pretty much overnight. The Frosties project had earned more than $1.3 million through its investors – investors who, on the 11th of January 2022, realized that they were now the owners of worthless digital art. Frosties was thus added to the long list of worldwide cryptocurrency crimes that were recorded mainly during 2021. 

What is an NFT Rug Pull?

As far as cryptos and NFTs are concerned, a rug pull occurs when the creators of a specific project abruptly stop supporting it. This action leads to a quick and drastic fall in the value of the NFT, leading to large and often irreversible losses for the investors. 

In the case of Frosties, the developers of the project were consistently sharing the details of their actions and activities through various social platforms, and this promotion helped push up the price of the project’s NFTs. 

However, on the 10th of January, users realized that Frosties’ website, as well as the project’s Twitter account and Discord channel, had abruptly disappeared. As it turns out, before deactivating the website and social media profiles, Frosties’ owners had withdrawn all the investment funds, and transferred them into their cryptocurrency wallets. The owners had withdrawn approximately $1.1 million worth of Ethereum (ETH) and transferred the currency into their crypto wallets, much to the surprise and dismay of the swindled investors. 

Other Instances of Rug Pulls:

The Frosties rug pull was the first one for 2022, but it is far from the first ever. 

October 2021 saw Iconics, which was a project developed under the Solana platform, also disappear out of nowhere. In the case of Iconics, the developers stole approximately 1,000 Solana Coins (SOL). At the time of writing, a single Solana Coin is worth $89, which means that the Iconics developers did away with money that is currently equal to $89,000. The Iconics artist had promised the delivery of 8000 3-D images, but what the investors received instead was a bunch of random emojis. The developers conducted a presale of 2,000 such ‘images’ for a per-image price of 0.5 SOL. However, instead of delivering these ‘images’, the creators stole the investment money and disappeared. 

Yet another major NFT rug pull occurred in March 2021, pulled off by an artist named ‘Neither Confirm’. The artist took NFT-associated pictures, and replaced this computer-generated art with random pictures of carpets taken from the internet. 

Avoiding NFT Rug Pulls – the Red Flags to Watch Out for:

Perhaps the biggest red flag associated with an NFT rug pull is the anonymity of the founding members. Use LinkedIn and enter the founder’s name in the search bar; the very first link that shows up will help you determine if the developer is using their actual name or hiding behind a pseudonym. If you find it hard or impossible to dig up information on the NFT founders, we recommend you to be extra cautious. Sometimes, anonymous teams do work out well, but the risk is extremely high. 

A second red flag to watch out for is the social media profiles or company website. If these platforms look fishy and hastily put together, it could indicate that the creators are looking to make some quick bucks before making a dash for it. Check for poor site speeds and spelling or grammatical errors in the content. Social media is one of the most important tools in detecting an NFT rug pull. 

If the developing team has a massive Telegram or Discord following, but a considerably lower number of Twitter followers, the project might well be a scam. Why? Because such a disparity shows that the founding team is likely using bots to lure people into believing that the project has a high level of engagement. 

Also check for the level of liquidity: a large locked-in liquidity (say, in excess of $100,000) is a positive indication, as the creators will not be able to pull the rug on a large proportion of locked liquidity. On the other hand, low liquidity is very much manipulate-able, and should be seen as a major red flag. 

 Final Word

NFT Rug Pull  your own resaerch

Unfortunately, the popularity of cryptos and NFTs – coupled with the lack of knowledge about how these things work – means that the likelihood of rug pulls and other similar scams, is very high. The only way to stay protected against such frauds is to stay as informed as possible, and we hope that this brief guide will make a meaningful contribution in that regard.