Join us as we examine Rug Pulls in the NFT Space with Daz3D
Being new to the world of NFTs and Web3 can be overwhelming. With so many existing projects and new ones dropping every day, it´s easy to get swept up in the excitement and caught up in the hype.
But not all projects are created equal. In this article, part of a multi-part series examining the nature of Rug Pulls in the NFT Space, we´ll explore some of the different ways that people use the term ‘Rug Pull’ – and how to get educated so it doesn´t happen to you.
- What does ‘Rug Pull’ even mean?
- What´s in a Rug? Lessons from Evolved Apes
- What happened to Evolved Apes?
- What do ‘Rug Pulls’ look like?
- Is it a ‘Rug Pull‘ ?
- How to spot the red flags?
- Educate yourself on rugs
By educating yourself about the NFT space, you can learn to separate the projects that have real, tangible aims from the ones that are designed to take your money.
Some projects have good intentions, but are not well run. Others are totally overhyped, with no real substance behind them. And others are just outright scams — they won’t deliver what they promise or even deliver anything at all.
As a community, we must set standards for ourselves: how can we help each other make good decisions about where we invest our time and energy?
What does ‘Rug Pull’ even mean?
Rug pulls have unfortunately become a common occurrence in the Web3 game, with the term ‘Rug’ being used to describe any project or experience that has gone wrong in some way. From criminals and bad actors duping communities out of ETH to being dropped off a Twitter Space mid-sentence, the term ‘Rug’ is misused and misrepresented.
This can be confusing if you’re new to Web3, so let’s explore what a ‘Rug Pull’ is – and what isn’t – by looking at different cases such as Evolved Apes, Big Daddy Ape Club, MekaVerse and Pixelmon.
What´s in a Rug? Lessons from Evolved Apes
On the surface, the official OpenSea page for the Evolved Apes NFT collection looks like nothing out of the ordinary.
The statistics at the top of the page outline a trading volume of over 1200 ETH and a current floor price of .01. The collection’s avatar and banner photo advertise art from the project.
The full 10,000 NFT collection is housed under the items tab, the filter panel on the left allows one to organize it by trait. And the project description describes the 10,000 NFTs as being “trapped inside a lawless land. Fighting for survival, only the strongest ape will prevail.”
Two weeks ago, an NFT even sold for .01 ETH (about 20 USD). Only Evolved Apes was far from your typical, thriving NFT project.
What happened to Evolved Apes?
The project sold out in just under 10 minutes on mint day, raising $2.7M. Shortly after, the website was down, the project founder deleted their Twitter account, and 798 Eth was drained from the contract-the evidence of which is visible on the blockchain for all to see.
What do ‘Rug Pulls’ look like?
Rug pulls come in many forms: some are scams that use bots to create fake communities, while others are led by charismatic founders who generate real, fervent communities such as the Evolved Apes example.
A rug is a deliberate scam where an NFT project’s founder launches a collection only to abandon it after the community has already paid for their NFTs. The founder(s) vanishes with the funds, leaving the community with worthless bags of JPEGs.
Here are some examples of confirmed rug pulls :
Rug pulls often happens after the art is revealed and this was not the exception for Evolved Apes. Collectors reportedly noticed red flags from the beginning but were convinced these NFTs would be the next best thing. The creator, appropriately named ‘’Evil Ape’’, erased all social media platforms after the public mint, scamming both the community and the artist.
Big Daddy Ape Club
This was one of the biggest NFT rug pulls on the Solana blockchain, in this example, the founders depleted community funds before a single NFT was minted onto the blockchain.
The people behind this project ran off with $1.3M riding the hype wave of ape-themed NFTs, selling out like hotcakes. The disappointed collectors found themselves empty-handed after sending in funds to mint these NFTs – that never existed.
Is it a ‘Rug Pull‘ ?
While the Big Daddy Ape Club and Evolved Apes were textbook rugs, projects like the MekaVerse mint in fall of 2021 have been miscategorized as one.
Hours before the MekaVerse’s art revealed, on-chain sleuths uncovered that “Legendary” NFTs from the collection were being traded. The drop was very clearly rigged given the insider info necessary to conduct those trades before art and rarity were known.
The community was quick to accuse the founders even though the culprit behind the disseminated insider info was unclear.
Regardless, the MekaVerse was not a rug, given that the founders did not explicitly run away with project funds and abandon the collection.
The ‘rug’ moniker was also misapplied to the Pixelmon debacle from earlier this year. Pixelmon was touted as a play-to-earn NFT metaverse game with the potential to unseat Axie Infinity.
The hype catapulted the project to $70 million of sales for their NFT creatures drop. But when Pixelmon founder Martin Van Blerk revealed the art and plans for what the team was building, the community was so unimpressed that they accused him of scamming them with an elaborate, $70 million rug pull. Pixelmon even won the “Rug of the Month” award with one online magazine.
But again, Pixelmon was not a rug. Van Blerk was just overly ambitious and bit off more than he could chew. Furthermore, he apologized to those he let down and promised to remedy the situation, selling a stake in the project to LiquidX Studio, which announced that it would take over leadership of the project.
How to spot the red flags?
We put together a basic checklist of important things that you should keep an eye on. Note that we will dive deeper into how you can stay safe from rug pulls, so make sure to follow our series to learn more about doing your own research and NFT safety.
- Research the founding team: a doxed team is always better than an anonymous one.
- Check for disproportionate numbers of social media followers: a smaller number of Twitter followers coupled with a huge following on Discord could mean the team is purchasing bots to generate artificial interest
- Check the website of the project: does it seem amateurish, is it slow, or riddled with spelling mistakes?
- Analyze the purchase history with DappRadar´s NFT Explorer: suspicious or just curious about a project? this tool provides data and metrics (including sales activity) with corresponding wallet IDs
Educate yourself on rugs
Both the MekaVerse and Pixelmon controversies involved founder missteps that eliminated community trust and tanked project value. But by definition, they were not rugs. And while some may see no point in distinguishing the exact nature of a rug from a run-of-the-mill scam, it’s essential to educate people on the nuances of the many dangers that abound in NFTs.
A rug is arguably the deepest and most sinister NFT scam, for it’s an existential threat to the future of the NFT space. A successful rugger must instill a deep layer of trust with their community to generate the necessary sales to steal away with; making the breach of trust even more devastating. Anyone who goes through a rug is left with an intense scar that could sway them from ever purchasing another NFT.
The graph above shows that despite Ethereum’s NFT trading volume was down by 76% from Q2 in 2022 the number of NFT trades increased by 11%. This happened despite the rugs and the grizzly bear market.
While sometimes rug pulls are impossible to predict, it’s of the utmost necessity to research the NFT space before “apeing” into a project, especially in a bull market where everything is over-hyped.
Given that we are almost two years into the NFT hype cycle stemming from spring 2021, a wealth of data and insights are abundantly available to NFT collectors to use.
Tools like DappRadar’s NFT educational content on Twitter, Discord, and YouTube, as well as the DappRadar NFT Explorer portal, provide immense insight on the people behind the JPEGs that collectors are investing in.
But sadly, even the most knowledgeable and seasoned collectors are still at risk from a rug pull now and again. So is the risk that runs in tandem with being an early adopter.
This is the first installment of a multi-part series examining the nature of NFT rug pulls. The series is supported by Fight Back Apes, a collection of hyper-realistic 3D apes with a retro-futuristic aesthetics spawned by holders leftover from the Evolved Apes rug pull. Follow our series to learn more about doing your own research and NFT safety