What is a Rug Pull?
The incident in which the NFT team abandoned the project and fled with investor funds is called an NFT “Rug Pull scam”.
Learning to recognize red flags can effectively reduce the risk of falling into a Rug Pull scam.
Common Rug Pull scam warnings include unrealistic roadmaps, complete anonymity of project members, and low liquidity.
Knowing how to identify common NFT scams such as “running scams” is the key to preventing fraud and ensuring the safety of personal funds.
NFTs are increasingly becoming the “new darling” of investors. NFTs have a dizzying array of use cases, disrupting the art world and numerous other industries. Over time, some NFTs will gain huge value. Unfortunately, the booming NFT field has also attracted the coveted by lawbreakers.
Although there are not only fraudulent scams in the NFT field, there are many scammers who keep an eye on NFT users and investors, and novice users are the key targets of scammers. In order to ensure safe and smooth operation in the NFT field, it is very important to learn to protect yourself and prevent common scams such as Rug Pull scams. Let’s find out what you can do to prevent falling for this type of scam.
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What is a Rug Pull scam?
A Rug Pull scam refers to an event in which altcoin or NFT teams abandon the project and abscond with investors raising funds. In other words, after individuals or gangs collect investor funds, they fail to fulfill their commitments to deliver NFT projects, which is a Rug Pull scam. Under normal circumstances, the so-called founders will issue a small number of NFT collectibles, falsely claiming to be large-scale projects with attractive interests, and use exclusive event participation qualifications, blockchain games or commodities as bait.
In addition, many NFT creators will invite Internet celebrities to promote collectibles for a fee or organize valuable gift distribution activities to build momentum for the project.
Many times, Rug Pull scams happen overnight. However, some projects will be laid out slowly, and there will be no update progress, and eventually, they will stop quietly. Most commonly, Rug Pull scams are crafted by anonymous individuals or gangs so that they can easily disappear without a trace.
How to protect yourself from Rug Pull scams?
Survey project communities and teams
The best way to avoid falling into the trap of a Rug Pull scam is to do your due diligence before investing in a project. Conduct detailed research on NFT projects, including identifying details such as community and team backlash. Follow the project entities on social media channels such as Twitter, Discord, and Telegram to keep abreast of the progress of the project. Can the project be delivered as scheduled? Does the website look professional? Learn about projects through authoritative sources and find out whether the team is professional and reliable. Legitimate projects with long-term value usually have a proven track record and are backed by well-established companies. The size of the community and the active interaction are good signs. But keep in mind that good vibes can be deliberately created through fake accounts and bots.
Evaluation Project Roadmap
The NFT roadmap details the goals and strategies of the NFT project in order to build long-term value. A general NFT roadmap includes:
- Project Milestones
- Short and long term goals
- Marketing and Development Planning
If the roadmap sounds too good to be true or completely unrealistic, there may be a problem with the project. The usual tactic of Rug Pull scams is to build a grand roadmap that garners interest from the community, but ultimately doesn’t deliver on the promise.
Not to mention that the goals they swore were never intended to be realized, and those goals themselves were difficult to implement. To reduce risk, it is safer to consider a roadmap with realistic goals and scalability strategies. It is best to find NFT projects that have already achieved clear results and have a reputation.
However, keep in mind that all projects, old and new, can fail. Like other markets, NFT trading comes with risks at all times. Therefore, please consider the risks carefully and do not invest more than you can afford to lose.
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Focus on liquidity
Low NFT liquidity means that tokens are difficult to exchange for cash or other assets. Volume is an effective indicator to measure the liquidity of a project. A high volume indicates a large number of users trading collectibles. As long as the NFT project has low transaction volume, low liquidity, and a small community, but the buyer’s enthusiasm is abnormally high, it may be a sign of a Rug Pull scam.
New NFT projects are emerging day by day, and we must focus on common scams such as Rug Pull scams. Understanding the principles of scams is the key to preventing scams. NFTs always involve risk. Learning to recognize the red flags of fraud can greatly reduce risk and keep personal funds and NFTs safe.
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Comment by Hans
April 24, 2024
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