Identifying Pump and Dump Schemes (AKA Rug Pulls)

 

Not all NFT Projects are created with the intent to build a community or offer utility over a period of time. Due to the increasing popularity in NFTs, many projects are launched to generate income for the project creators — unfortunately sometimes at the expense of buyers.

At the start of a new project, its creators or leadership may make promises about what's to come, the project's potential, or utility for the community in order to attract buyers — even though they do not intend to fulfill those promises. 

It can be difficult to know for sure whether an NFT project is potentially a pump and dump scheme, but here's a few warning signs:

  • The project is announcing partnerships with major brands or influencers who have not announced these partnerships themselves. 
  • The project creators do not provide clear timelines for when certain products will be released or do not provide regular updates on their progress 
  • Promises have been made to deliver a technical product, yet there is no link to their Github or other codebase where you can verify that updates have been made to the codebase. 
  • While this is debated, it should be noted that extra scrutiny should be applied to projects with anonymous teams. Before buying a project's NFT, you should be able to point to at least a handful of credible individuals or organizations whose identities are known that have publicly endorsed the anonymous teams.   
  • The project is clear imitation or version of an already popular NFT project. Use platforms like Twitter, Reddit and Discord to understand the social sentiment behind the project and to verify the above watch-outs.
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