Detect & Avoid Crypto Scams or Rug Pull

Let’s start by explaining what we are talking about, for you to understand what a Rug-Pull is!

Definition of a Rug Pull: a terminology used in the crypto NFT world to describe a NFT scam or NFT theft, where creators of NFT collection just disappear with the money, leaving everybody with nothing. Search outside the online world for real life proof of existence.

How to Detect Rug Pull NFT Scam
Recent NFT Rug Pull by Evolved Apes Inc

Website, Twitter accounts, Discord from Evolved Apes Inc have also completely disappeared.

Here are the NFT DYOR (Non Fungible Token Do Your Own Research) to look for:

Anonymity of NFT Founding Team

First, you want to make sure the founding team is known and have some identifiable social accounts, to avoid anonymity and fake NFT profiles. Even better is the team has had already a proven track records on the crypto scene.

Make sure the team is supportive to respond to queries (blocking questions on Twitter is surely a negative signal) on their project on NFT social media. And brand new Twitter accounts of NFT founders without real identity should also raise a red flag.

Be careful

Similarity of NFT Degen Yield Farm

If you are able to recognize that project have a similar NFT layout, because we so often see that all the yield farms have the same layout. The reason is that they reuse the original code from the GooseSwap Degen Yield Farm to host their site.

You probably can tell if a project is a scam from the amount of time that someone has spent to develop it. Is the website cheap and reusing free stock images or are they creating a dedicated design with personal branded NFT infographics.

NFT Liquidity

Check the liquidity if you invest in a specific token (AAVE, Curve or Defen) to check if a token is likely to be a scam. For example a NFT token with $10,000 in liquidity can be quickly manipulated to raise the price, to make a pump and dump. But is also means that the developer doesn’t have a lot of money to invest in the token.

The liquidity refers to the amount of value and tokens that can be traded.

NFT Social Authority & Proof

If big influencers are promoting NFT projects with a promise to eventually match your investment. It is obviously more dangerous if the influencer have no part or investment in it. Good projects tend to promote themselves without help from influencers. Especially A-List influencers promoting NFT Projects that are not backed on Ethereum or Bitcoin.

Check for code coin, Roadmap, white paper, social accounts…

Scam NFT projects by Influencers

NFT White Paper

If there is no white paper or of a poor quality… just run ! Qualitative NFT White Papers are a must, it a good signal of the investment of the founding team and their professionalism. It has to be written in good English and elaborated in the structured way to “sell the project” to investors, with NFT timeline, NFT infographics, NFT Statistics, and the problem they are solving. Less than 25 quality pages: red flag !

The White Paper should be well structured, should not be a copy paste from other projects, should lay out NFT rules of engagement such as NFT giveaways, NFT Minting process and timing, etc.

Inspect the NFT Code

You should have a look at the token code or the smart contract code, or ask someone knowledgeable to do it for you. You can use a blockchain explorer and use the contract inspecting tool (maybe a bit difficult or technical). The easy alternative is to go to Rug Doctor (https://rugdoc.io), an online service specialized in analyzing smart contract code. This site will detect often seen Rug Plug technics and code.

You also wan to asses the degree of similarity of a token to another. You can use https://tokensniffer.com, who will do the job for you. If a token has something between 80 to 100% similarity… RUN ! You have a huge NFT Red Flag in front of you to become a Degen.

Check the Wallets for Whales

You can use a blockchain explorer to investigate the structure of NFT owners and look for NFT whales that could do some NFT manipulation of price. Polygon, Binance, Ethereum smartchains or make a blockchain explorer available to look at all the tokens available.

You can access a list of all the NFT Token owners. If you see that more than 20% of all available token are in the possession of one NFT Wallet, or the Top10 NFT holders control 20%… Watch out for the RUG ! Because one person of a small group could sell a large amount of tokens at once and land crash the price.

Check the Total Value Locked TVL

TVL is the total value in dollar of tokens and coins invested in the project. Classical Degen Yield Farm promoted on social media have usually a couple of hundred thousand dollars worth of TVL. If you compare it to the larger market platform (AAVE has 20 billion TVL) you can see on which side of the fence the risks are !

Be careful of Copycats

Some NFT Collection creators just copy and paste renowned NFT graphics and hardly change the name of the original collections. For Example SOLPUNKS are a rip-off from CRYPTO PUNKS, the same with SOLANAPES with BORED APE NFTs.

Their goal is simple: scam the average non-aware Degen who will confuse their project with the original one, and benefit some the hype of the original collection release. They might even make a Rug Pull in the end.

SolanaApes copycat

Conclusion on NFT Scams

Because the Crypto Market is like the Wild Wide West emerging markets, it will attract a lot of smart-ass hackers and scammers who see easy opportunities to steal from people. There are also a large variety of means to make millions with NFTs in a very short period of time.

So Rule Number 1: Do Your Own Research (DYOR) and don’t succumb to the Fear of Missing (FOMO) before, in order to avoid to invest blindly !

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