NFT Scams are Getting Worse: Here’s How You Can Avoid Them
Here’s the truth. 1 in 10 people in the US alone fall victim to scams each year. Interestingly, over 58% of the scammers simply use old-fashioned techniques. What’s clear is that you don’t need a hi-tech operation to pull off a good scam. And intelligence doesn’t prevent you from avoiding them.
The primary issue is that many people have a scarcity mindset. What does this mean? They think there’s a limited amount of resources available to them so their ego blocks them from truly winning.
So they look to get rich quick – searching for shortcuts to the promised land only to end up in a ditch. Embarrassed, broke, and confused. Don’t let this be you.
This article will show you to spot the red flags of an NFT scam from a mile away. All so you can avoid the heartache and damage done to your wallet.
There’s one strict requirement:
You must believe you’re going to make it. There’s plenty of opportunity for you in this space. When you understand this, you’ll assess projects with clear eyes and make decisions that put you in the position to win.
Let’s get into it.
What’s a Rug Pull?
Rug pull or rug is another term for a scam in the NFT space. Fraudsters create a bunch of hype around a project. They get people to join the community and then release crappy art in exchange for ETH or SOL tokens.
Then they shut the entire project down leaving people with worthless NFTs. And voila! The scammers ride off into the sunset with a bag of money.
5 Red Flags to Help you Spot a Rug Pull
- Copycat ideas and art: It’s a blatant rip off of a successful project with no clear differentiator.
- The founders have no skin in the game: They didn’t create the product, design the art, or do any dev work. Huge red flag especially if #1 is true.
- The founders are secretive: You have no clue about who they are. They don’t share videos or their voices. And they don’t talk about the project in depth.
- Urgent mint right after the Discord launches (about 2–3 weeks): The growth rate is something wild like 5K+ or even 10k+ per day starting from zero.
- A community that doesn’t talk about the roadmap or the art itself: No one talks about why the project even matters, let alone exists.
Be mindful, however, that a single red flag doesn’t mean the entire project is a sham. Building an NFT project is hard work. A lot of times founders have to make tradeoffs as to what they focus on improving.
At the end of the day, you must Do Your Own Research.
There’s a saying that has rung true since the dawn of man: If it sounds too good to be true, then it probably is.
Giving you a list of things to watch out for is a nice start. I’m going to walk you through the systems that enable scam projects to be created.
The Seedy Underground of NFTs
You ever wonder how these projects grow so fast – getting tens of thousands of members in a matter of weeks, even days? The NFT space is still relatively tight knit. It doesn’t take much to be well-known in certain circles.
First, it starts on Twitter with a credible persona.
Scammers use a high-status NFT as their profile picture on Twitter to gain near-instant credibility.
Think of someone pretending to be rich in order to get close to actual rich people. This breeds familiarity and puts new folks at ease as they assume the founder knows what he’s doing.
What helps, though, is that Twitter now requires users to verify ownership of the NFT used as their profile picture. It’s a deterrent, but not foolproof.
It doesn’t stop there.
Twitter promoters are enlisted to help bring eyes to a new project. There are A LOT of them. I’m not going to name names, but you know what they look like. They have a high follower count of which 90% of the followers are fake.
Promoters are paid something around an easy $200 per post (this varies depending on how big the account is). And the posts look something like this:
“Retweet, follow, and tag 2 friends. Join the Discord!”
Their entire timeline is filled with these ads that broadcast raffles or giveaways. Some of them offer free NFTs as the prize and others just give out straight money like ETH or SOL tokens.
Now, about the remaining followers that are real. They tend to come from impoverished countries and part of their day job is to enter these raffles with no intention of buying NFTs in the future. It’s a pure cash grab. Can’t knock them for that.
The other part of their day job is using these Twitter promotions to find other NFT projects and their Discord servers so they can DM the participants.
This brings us to the other half of the game . . .
Discord Marketing
Imagine you’re a Discord server owner and you allow yourself to receive DMs. You’ll get a bunch of them from various service providers offering to help you “grow” your server.
For the hilariously low cost of fifty cents per new member, they will join other servers and message the participants, inviting them to join your community.
“Hey check out this hot new project here! Here’s the link.”
So if you want twenty thousand people in your Discord, then you’re shelling out a cool ten thousand dollars. That’s it.
But wait you say, this sounds too good to be true. Well, because it is.
In reality, the service provider that reached out to you is actually a team lead that subcontracts out the real work.
They manage ten to hundreds of contractors to whom they pay around $10 per thirty new members to join your server.
Naturally, human beings love to use shortcuts to accomplish goals. So these contractors already have 30 accounts set up to join the target servers and invite those members. It’s an easy $10 without running into too much work.
The team lead is pleased with the results. And no, there’s no quality assurance process because there’s no incentive for them to do it.
As the server owner, you have to do it, but you’re way too busy for that. You’re paying for the high growth rates. The alternative to all of this is using bots, instead, to send the DMs.
Nonetheless, be wary of projects that host “invite contests”. These aren’t bad in and of themselves. They’re a good way to build some momentum in the beginning if done correctly. The slope gets slippery fast though.
Don’t Be Fooled by Projects with Large Followings.
People want to get in on what’s trending before it’s too late. Those new to NFTs see these inflated groups and the trend charts shooting up. And FOMO sets in hard.
Do NOT ever judge a project solely by their follower count.
You must do your research before doing anything else. Think about it. If a project is paying people to join their community, then do you think the founders really believe their project has any merit? Nope.
Right Before Launch
A few days before launching, you can hire people to act like superfans of your project for about $5-$10 per hour.
Imagine you’re in a night club with sexy dancers mingling in the general crowd. It’s provocative. It gets the people going. Professional party starters, if you will.
This method, again, is a gray area because it can serve as a nice catalyst or quickly turn into a disaster.
No need to be totally cynical
These flags as stand-alones don’t mean a project is fraudulent. Possible, yes. But what’s important to point out is that if you see a lot of these flags pop up consistently then you might want to dig in further before you make a mistake.
Some projects have some of these flags because it’s hard to do everything right. The teams are small and have a lot to do, so sometimes things fall by the wayside. If you see consistent bad behavior, then yeah run fast and far away.
That’s it for now.
Stay safe out there and be smart. Lots of new schemes are popping up every day with each being a bit more sophisticated than the last. Follow people who are clearly bright. Think critically before you part ways with your tokens.
Until next time.
Disclaimer: None of this is legal or financial advice of any kind. These are just opinions and insights from a group of parents who’ve spent an obscene amount of time in the NFT space and are building something awesome for it.
