Restack.AI Company Logo

Two Types of NFT Rug Pulls

Restack.AI - Blockchain NFT Consultants & Web3 Staffing.

Share This Post

NFTs are a 21st Century Phenomena

They are nothing more than digital files with unique serial numbers. JPEGs, audio and files are assigned a unique address on the blockchain. The primary application is to verify authenticity and ownership. However, they can also act as a membership card to an exclusive online club or a pass to enter a game. In the future, many envision that homeownership will be marked by an NFT. The owner simply puts the virtual title on an online marketplace and transfers ownership as soon as the buyer’s payment hits his wallet address. It’s there for all to see on the block explorer: when was the transaction, how much was it, and who bought it, assuming the buyer’s wallet address can be resolved to his identity.

The Frosties NFT collection, started 2022 out with a bang when the creators pulled the rug out from under investors, taking around $1.1 million worth of cryptocurrency with them. On March 24, the U.S. Department of Justice (DOJ) announced the arrests of the two reported scammers, leading the Frosties NFT rug pull.
Rugs caputured the FBI’s atttention

NFT Fund Raising 

Since most projects lack in-house technical expertise to build games and apps, they sell NFTs to raise money to hire outside consultants.  Also, like traditional businesses, they invest into marketing, hoping to gain users. It’s more or less like raising seed capital.  Like many business startups, most NFT projects do not deliver on their promises, failing outright, becoming “rugs” or “rug pulls.” There are two types:

Genuine Fraud

The creators of the NFT project invested time and money into a glossy package and marketing campaign, hustling several thousand people for a few hundreds of dollars each. The NFT buyers understand that the project needs time to deliver on the promises outlined in the roadmap. Staking is one of the most common promises. The investor parks their NFT in a manner similar to fixed deposit. They either earn tokens, created by the project, or another cryptocurrency. After a few months, the promised game never materializes and the project founders are long gone. It’s happened so much that the FBI had to get involved. Rugs cost users about $2.8 billion in 2021!

Poor Execution

Planning a project is one thing, executing it is quite another. Many NFT projects are run by amateurs with no real project and budget management experience. They find out quickly that dealing with vendors is difficult at best. What’s clear in their head is not readily visible to a third-party tech company. Very few projects have seasoned developers in house who can clearly “see” the vision and fill in the gap in the written specifications.

Most people don’t realize that the project visionary sees things in broad terms and concepts and the techies building it see things in narrow and specific terms. Very few developers can do both and struggle to comprehend the vision of what they are coding. Before you know it, the NFT project founders run out of money. Some try to sell more NFTs, offering hope that the next edition will offer enhanced features, or start stalling, blaming others or circumstances for the delays. They start hoping that people lose interest over time. That’s known as a “slow rug pull.”

Blockchain developers require the following skills and experience: Cybersecurity, Computer Programming,
Data Structure, Smart Contracts, and
Solidity is not easy!

Risk Management

The most important aspect of any project, digital or real-world, is the people behind it! If a bunch of college kids in a dorm room are promising their JPEGs can change the world, and they have no resume or examples of previous work (working code), it’s probably a rug. 

The Infungibles is a We3 blockchain game on the Solana network.

A Good NFT Project Case Study

The Infungibles, is a successful NFT game on the Solana blockchain. Before doing their mint (first sale of NFTs), they released a demo to the public: a working game. Instead of NFTs, they had in-game pieces acting as the NFT. Hence, they had the game ready before minting. I knew what I was buying and how it would work. The only material difference in functionality is that the NFT allows you to sell your game piece on the open market, along with its experience and add-on capabilities. It separates the game piece from your email account, making it much easier and faster to transact. 

About Restack.AI

We are an NFT game and app development company, located in Lviv, Ukraine. We are developing an ecosystem of games and apps, open to de-rug NFT projects. In parallel, we offer software engineering services to external clients.  We are technology-agnostic, and our team loves challenges. 

Disclosure: I own ten of The Infungibles NFTs, which I bought purely for entertainment. Please do your own research before investing into NFTs, crypto or any other financial products.

More To Explore

Explore the intricacies of smart contract development, their potential impact, and the skills needed for successful developers in this insightful article.

The Challenges of Writing Smart Contracts

Discover the challenges of writing smart contracts, including complexity, coding errors, and security vulnerabilities. Learn about their transformative potential in industries like DeFi and supply chain management, and explore the ideal skillset for successful smart contract developers in this comprehensive guide.

EZ Wallet is a single sign-on Solana web wallet, allowing you to login with your Google account.
Press Release

EZ Wallet: A Solana Web Wallet with SSO

Restack.AI attended Istanbul Blockchain Week 2022 and took part in the conference hackathon. Our CTO won first place, creating a Solana Web Wallet with Google Single Sign On.