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.
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.”
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.
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.
