Just when we thought NFTs had peaked, the market was responding in the opposite direction. Irrespective of how the equity and crypto markets fluctuate, the NFT space is growing at an unbelievable pace. Over last year, the NFT market observed a 131 times growth in sales and recorded close to $25 billion in trading volume. In these first two months of 2022, the trading volume already crossed $16 billion, with new marketplaces like LooksRare taking the whole community by storm.
When an asset class grows this fast, it attracts all kinds of bad actors who want to cash in on the next big trend in crypto. As the majority of market participants are unaware of the social engineering tactics and NFT exploits, they tend to be the next group of victims, losing thousands of dollars for a baseless NFT.
At the beginning of the whole NFT craze, we saw maybe 2-3 unique NFT drops every week. But the bar is now so high, with projects like Bored Ape Yacht Club, Doodles, Cool cats, and Azuki, that the majority of projects are trying to recreate the same experience and are failing miserably. In some cases, project owners are trying to create artificial hype for the NFTs to sell out by leveraging influencer marketing.
Now, it is not a bad thing to collaborate with celebrities and other high-level profiles to get the word out. But the manner in which these promotions are made seems as if they are only in it for the money. Recently, we have seen many NFT collections go south with scams and rug pulls, leaving a bad impression on the entire NFT space. Today, we are going to uncover five such projects that led to thousands of people getting rekt and millions of dollars in stolen money.
Pixelmon— A Collection that made everyone look in the mirror
Pixelmon was one of the most hyped NFT collections that promised holders a unique Pokemon-like metaverse. The majority of the NFT community felt that the concept of using NFTs as pokemon in an open-world RPG and becoming in-game merchants is top-notch.
However, we know that making such promises and setting unrealistic expectations is common in the NFT space. But the case of Pixelmon is quite different from other pump-and-dumps. The team raised nearly 70 million dollars via a dutch auction, meaning there will be a high starting price that keeps dropping after a set period. In the case of Pixelmon, the starting price was 3 ETH, and it would go down by 0.1 ETH after every 10 minutes. Yes, thousands of people paid $9,000 for the images given below.
For context, famous collections like Cool cats and BAYC cost less than 0.1 ETH to mint. They not only delivered outstanding artwork but also built a fantastic community. Pixelmon did neither. The worst part about this project is that the 20-yr old creator, Martin Van Blerk, bought all the images from an animation studio called MeshTint Studio for less than $160. In further investigation made by NFTherder, it is also found that Martin copied the gameplay from another developer.
So, the creator failed to meet the expectations and raised 70 million, doing absolutely nothing. That says a lot about the buying behavior in the NFT space. People were willing to spend thousands of dollars for a project that had no track record and a project leader who fooled investors before with his Kickstarter campaigns.
What about the funds? After the community raised concerns, the Pixelmon team announced they would outsource the artwork and spend $2million. Just zoom out and think how crazy that sounds. The team failed to meet expectations. And to cover up, they will hand over the work to someone else. In addition, it was also brought to notice by on-chain analysts that Martin spent nearly 280 ETH, $1.3 million, on top NFT collections like BAYC and Azuki.
If scamming people of thousands of dollars and putting self-interest over the community was not enough, the Pixelmon team made another mistake of storing the data of NFTs on their own website, meaning the entire project is centralized. This is one of those projects you have to analyze and avoid social engineering tactics carefully. The price of Pixelmon NFTs is down to 0.5 ETH, leaving almost every owner in a state of disappointment and anger. Please never fall for such things again. Let’s move on.
Squiggles — What could have been a Disaster now became a slow rug
One of the, if not the most, hyped projects in the NFT space was Squiggles. Not because the team planned some insane utility or metaverse like Pixelmon. The social media numbers and huge community made everyone believe it would be a quick flip to make some money. The artwork also caught the attention of many people in the NFT community. But everything changed once the true intentions of the team came out.
The real truth about the anonymous team came out when a Twitter user published a sixty-page document highlighting how the team did similar things with other NFT cash-grab projects. Although the document is now deleted, I did get a good look at it. Believe me, when I say this, it had almost every step the team made to create pump-and-dump projects and how they did it again and again. It was bad, guys. Also, the team tried to promote the project by connecting with a famous influencer having over 8 million followers.
In terms of mint pricing, the team, similar to Pixelmon, decided to do a dutch auction with a starting price of 1 ETH. If the document didn’t get published on time, the team could have made over $3 million from primary sales alone. As the community got alerted at the right time and OpenSea delisted the collection, the team only sold 50% of the collection.
Jacked Ape Club — Influencers Cashed in BIG
It is repeatedly observed in the NFT space that it is a major reg flag when an influencer joins a team for no reason outside of the promotion. In the case of Jaked Ape Club, another derivative of BAYC, many influencers like Helloimmorgan and Bradley Martyn made many tweets, giving away whitelist posts.
Most NFT projects keep the whitelist to public spots ratio balanced. But Jacked Ape Club decided to offer 7000+ whitelist posts. Why? Because it can give room for promotions and to draw more interested buyers. When accused of paid promotions, these influencers flat out denied. But when Zachxbt and other investigators shared their findings, some apologized for not disclosing the arrangement with the team. The image below shows how much was paid out to different accounts after the project sold 3200 NFTs (yes, the project did not sell out).
The future of this project is pretty much over. Once the community loses trust in the team, no one will be interested to invest. The community wallet seems to have about 80 ETH left. But without the full team, we don’t see this project meeting the roadmap expectations.
Swipa The Fox — NBA Player with salary of $30 Million/year takes home 420 ETH after pulling the rug
You wonder, why would someone making $30 million a year in the NBA rug-pull their fans for $1 million? I don’t know the real answer for that. But the creator of Swipa the Fox, De’Aaron Fox, said the following in his tweets.
The project was expected to deliver high-utility NFTs with 3D Fox avatars. The team also promised perks like college scholarships and NBA all-star game tickets. To compensate the holders, Fox plans to give away signed jerseys. But there’s a catch to it. The ones eligible for this giveaway bought 10-20 Swipa The Fox NFTs. So the remaining get nothing.
NFTherder also noticed that Swipa The Fox discord got exploited twice in the same week. Further, the team cut the supply from 10,000 to 6,000, as it didn’t sell out. This is another instance where high-profile individuals leverage their community and fans to make quick cash-grab NFTs.
OpeNFT — Owner Ran Away with 277 ETH and Bought NFTs
According to Shual’s thread, it has been over one year since Tyler Gaye, the creator of OpeNFT, ran away with 277 ETH, raised from more than 130 investors. OpeNFT aimed to create a marketplace for NFT creators and solve major inefficiencies in the NFT space.
At that time, NFTs were new to the majority. And people wanted to get in early deals, creating NFT marketplaces. So the supporters of Tyler believed in his vision and raised close to $500k. The roadmap was published, and all the features were explained to the community. And from then on, it was a complete downhill with red flags all over the place.
The team stopped developing the smart contracts and banned users who raised concerns and questioned Tyler’s intentions. After a few months, the community got more suspicious. Tyler was not providing any updates and was promoting second-tier projects for money. It is also observed that he bought many NFTs with the investment money. Further, the chats with Shaul were distressing and made it clear that Tyler would not refund any money.
Closing Thoughts
If you were a part of these collections or projects, I am sorry for your loss. It has become a glaring issue in the NFT space, and we have to do something about it. Here are few ways you can avoid being the next victim:
- You should never fall for high-mint prices. There is absolutely no reason why a project can’t execute well with 1000 or 2000 ETH. Having mint prices above 1 ETH is not at all a good sign.
- Don’t accept everything your favorite influencer tweets or shares. Most of them are promoting projects for money.
- Always do background checks. It is a big red flag if the team is not competent enough and no one has experience in this field.
- I know this will sound cliche but do your own research.
These scams will keep happening. We, as a community, should get smarter and spread more awareness.
Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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