An NFT rug pull occurs when a team abandons an NFT project and disappears with investors' money.
You can minimize the risk of falling prey to rug pulls by learning how to recognize a potential threat.
Some common rug pull signs include an unrealistic roadmap, completely anonymous project members and low liquidity.
Learning to recognize common NFT scams like rug pulls, is the first step to avoiding them and saving your funds.
NFTs are becoming increasingly popular among investors. Thanks to their incredible possibilities of use, they changed the art world and many other industries. In addition, some of them can significantly increase in price over time. Unfortunately, NFTs have become a tasty morsel for scammers as well.
And although scam is widespread not only in this sphere, there is an increasing number of scammers targeting NFT users and investors, especially beginners. To make your experience using NFT as safe as possible, it is important to know how to protect yourself from common scams such as rug pull. Let's see how not to falling prey to scammers.
What is rug pull
Rug pull is a scam that occurs when the altcoin or NFT team abandons its project and disappears with the money raised from investors. In other words, these are cases when a person or a group responsible for NFT project does not keep promise after receiving investments. Typically, the creators release a small collection of NFTs as a teaser for a bigger project with enticing benefits, such as exclusive access to events, blockchain games or merchandise.
In addition, many NFT creators pay influencers to promote their collections or host expensive giveaways to creat a buzz around their projects.
In many cases, the team runs away quickly. However, there are also situations when it happens slowly, and the project is quietly abandoned not being updated or developed. Most often, rug pull schemes are used by an anonymous person or a group to make it easier to disappear.
Research the community and team
One of the best ways not to avoid falling for a rug pull scam is to carefully examine a project before investing. You should learn more about its team and community as part of the analysis of the NFT project. Check out the social media channels, such as Twitter, Discord and Telegram, to have a full understanding of their development. Are the promises kept? Does the website look professional? Research the project through reputable sources and try to find out if the team is professional and reliable. Legitimate promising projects often have a proven track record, and a well-known company behind them. A large and engaged community can also be a good sign, but don't forget that it could be created by fake accounts and bots.
Evaluate the road map
The roadmap details the goals and strategies of NFT project to ensure its long-term value. It usually includes:
Short-term and long-term goals
Marketing and development plans
If the roadmap looks too good to be true or simply unrealistic, it may be a sign of a dubious project. Rug pull schemes often use an ambitious roadmap to attract the attention of the community. However, no one is going to follow it.
Apart from the fact that the scammers have no intention of achieving the stated goals, these goals are often too difficult to execute. To reduce the risk of losing funds, you should prefer roadmaps with realistic goals and scalable strategies. Even better to look for NFT projects that have already achieved significant results and have proven themselves.
However, remember that all projects can fail regardless of their size and time of creation. Like any other market, risks are always possible in the NFT market, so consider the risks and dont invest more than you can afford to lose.
Check the liquidity
If the NFT project has low liquidity, it may be difficult for you to convert the token into fiat or another asset. Trading volume is an indicator that helps determine liquidity. A high trading volume indicates that many users are trading the collection. Low trading volume, low liquidity and a small community of overly active buyers may indicate a rug pull scheme.
As more and more new NFT projects appear every day, it is important to beware of common scams, including rug pull. Understanding how such schemes work is the first step to avoiding them. NFTs always involve some risk, but the ability to recognize a potential threat that could be indicative of a scam will help you reduce risks considerably, keeping your funds and NFTs safe.