What Are Permissionless NFTs?

Developers and companies are discovering dozens of new use cases for NFT technology—from community governance to luxury travel and real estate. 

There are many reasons NFTs are in huge demand, the most prominent being the features of their underlying infrastructure—public, permissionless blockchains that serve as the foundation for all things crypto-related. 

In this article, we dive into these blockchains and how they pave the way for us to discover the full potential of our NFTs.

What Is A Public Permissionless Blockchain?

Each blockchain is a shared database where transactions between a network of users are stored. The records are distributed among participants and made public so that anyone can access them inside or outside the network.

There are three primary forms a blockchain can take:
1. Permissioned,

2. Private,  

3. or Public and Permissionless. 

This article will focus on public, permissionless blockchains—like Ethereum—as they’re more commonly used for NFTs.

We can call any blockchain “permissionless” if participants can use it without restrictions. A public blockchain lets anyone access the blockchain. Therefore, a public, permissionless blockchain can be used by anyone, anywhere, without restrictions.

Permissionless Blockchains And Permissionless NFTs

Most NFT marketplaces allow any user to mint, buy, and manage their NFTs independently. However, some marketplaces—like the Binance NFT marketplace—may choose what NFTs can be created and shared, as well as gain access to the private key of the NFT holder, i.e., take custody of the token.

An NFT is only as “permissionless” as the blockchain that hosts it. But, most people have only ever interacted with permissionless NFTs due to this specific use case’s commercialized nature.

Remember, an NFT is just a token. Since community is the crux of many NFT collections (i.e., a 10,000 collection of Bored Ape Yacht Club NFTs), creators would be wise to host them on a permissionless (i.e., anyone can buy the NFT) blockchain.

In an alternate universe, a NFT creator could theoretically choose to mint their NFT on a “permissioned” blockchain, where only a private audience can access the token. 

The Benefits of A Permissionless NFT

Permissionless blockchains are the main reason NFTs have seen widespread acceptance, vast usability; here’s why:

Decentralization

If you purchase an NFT today, the record of your purchase is linked to the history of the NFT on the blockchain. Anyone on the internet can confirm the existence of your NFT without needing to go through any company or regulator. 

Since blockchains are distributed ledgers, this also means that no single entity can manipulate the records as they please. The value of the NFT can be trusted because the decentralized blockchain is free from control or manipulation by any entity or group.

Transparency

NFTs are stored transparently, so the record of the creation, sale and any transfers of the NFT are accessible to any prospecting buyer or any other interested party. 

If you consider purchasing an NFT, you can analyze the record of the NFT, its various sales prices, its creator, and the exact moment it was created. In this way, NFTs can’t be faked.

NFT transparency also applies to market sentiments concerning any particular NFT you are interested in. Some NFT marketplaces allow you to view bids made by other prospecting buyers, which can guide you as you decide how much you should pay for the NFT.

Anonymity

Permissionless blockchains allow you to trade NFTs without revealing your identity or undergoing rigorous Know-Your-Customer (KYC) checks that require you to submit government identification and other requirements. This means you can keep yourself and your NFT investments private.

Ease of Exchange

Unlike other assets that may require significant effort and time to purchase, NFTs can be sold in seconds on any NFT marketplace. Most NFT marketplaces have a straightforward process for listing your NFTs, so in minutes your NFTs can be available to the public and sold.

Final Thoughts: Permissionless, Non-Fungible Tokens and The Blockchains That Host Them

From CryptoPunks to Little Pudgys, NFTs have seen massive growth and will probably only see more. 

Anyone who owns an NFT owns a token that is a one-of-a-kind digital asset and cannot be replicated. 

Although NFTs can launch as a collection and may share the same attributes, each NFT in a 10,000 NFT collection would still have its unique signature—stored permanently on the blockchain—making it irreplaceable, even if the proposed replacement looks exactly the same.

The potential of NFTs for various industries and systems is still being discovered, made possible through the core characteristics of blockchain technology.

Public, permissionless blockchains like Ethereum, Solana, and Algorand make NFT creation and investment even more accessible.

While the NFT industry is still early, its underlying technology provides a sturdy foundation for many more use cases across industries.

How to Get Free NFTs That May Gain in Value

It’s June 2017. CryptoPunks — digital art pieces from what will become one of the most revered and valuable NFT collections that have just been launched and are being claimed for free by Ethereum users. 

Fast forward to 2022 and CryptoPunk #5822, a light blue alien punk with a bandana tied onto its head, is sold for $23.7M.

 It would be a dream come true for most people to ‌travel back in time to ’17 and claim one of those Punks for free. Claiming potentially valuable NFTs for free is a widespread online practice, but is it all it’s cracked up to be?

Can you actually get free NFTs that may gain value?

Let’s explore four good ways to get one online.

Get Free NFTs Via Play-To-Earn Games:

NFT gaming revolves around players earning NFTs that have actual value while having fun. Play-To-Earn (P2E) games help encourage people to buy and trade blockchain assets. Many P2E games run on the WAX blockchain and projects give users free NFTs to promote activity. 

If you’re not opposed to a bit of competition, you can earn free NFTs by playing games like Splinterlands and The Sandbox. These games allow players to win in-game items that can be sold for cryptocurrency by participating in daily quests or tournaments. 

Most NFT games have a booming marketplace where other players buy or trade in-game items. A game NFT may not be the next CryptoPunk, but it could grow to be of actual worth. 

There are several great NFT games to choose from, so it should be reasonably easy to find an NFT game that interests you. Besides free NFTs, NFT gamers can also earn cryptocurrency.

NFT Giveaways: 

Several NFT projects use giveaways to boost engagement or awareness for their project or express gratitude for their community’s support. These giveaways are most common on Twitter and Discord servers.

Following a project or an NFT influencer on Twitter is a good idea if you want to be aware of giveaways. You may be asked to retweet a post, share your ETH address, or follow specific accounts to win a giveaway. The winners are often chosen using a Twitter picker tool at random.

The downside to Twitter giveaways is that you may come across giveaway scams, where the Twitter user or project is using their giveaway post to gain followers without actually intending to gift an NFT. Do proper research on the user or project, so you don’t waste time and effort on these scam tweets. 

Another great way to get free NFTs is through giveaways in Discord communities. Projects trying to support their community may gift an NFT to a lucky member or have a process through which members can gain an NFT. To have access to these sorts of giveaways, you’ll have to be a member of the project’s Discord server. 

Just like on Twitter, some giveaways on Discord groups choose winners randomly. Projects may also make their Discord giveaways exclusive to members who already own their NFTs. 

NFT Airdrops 

Fractal, a popular NFT project based on Solana, recently airdropped 100,000 NFTs to members who registered. Several other projects are airdropping free NFTs, as airdrops are a common way projects raise awareness of their coin or NFT. 

All you have to do after finding an NFT airdrop is follow the process to register for the drop. Once it occurs, you’ll receive a token in your wallet. Enjin, a popular blockchain platform, sends free NFT airdrops randomly for users to claim. Free to Mint 

NFT projects also create free to mint tokens or free mints to boost interest in their projects. 

Free mints are NFTs you can claim without paying a minting fee to get the NFT. You’d still have to pay gas fees, which may be cheap or expensive depending on the project’s network. For example, Ethereum gas fees are costly compared to Near or Solana gas fees.

Security Tips

NFT airdrops, P2E games, giveaways, or free mints are all great ways to get a free NFT that may gain in value, but you should stay aware of possible scam projects or phishing attacks. 

Projects with free mints sometimes get hacked right before mint and there have been situations where user’s wallets were drained of funds after connecting their wallets to malicious links. If you’re interested in getting free NFTs, you should:

  • Always do your research. 
  • Avoid clicking on any link sent by a stranger to your DMs on Discord.
  • Do not rush to connect your wallets to mint an NFT until after a reasonable time. Some free mints last for hours or days, so you can usually wait to ensure  other collectors are claiming their free mints successfully. 
  • Keep in mind that no project admin would DM you to participate in a giveaway or free mint . 
  • Never give your seed phrase to anyone. 
  • Be part of an Alpha community. Alpha communities are the perfect place to get information on upcoming NFT Projects. 

Final Thoughts: Getting NFTs That May Gain In Value

Free NFTs are not hard to come by, but what sort of NFT you claim matters. If you want to get a free NFT that may gain exponentially in value, you  need to do your research.

You can learn about an NFT project from its whitepaper, Discord community and social posts. Most projects also publish updates on their timeline, growth or plans on a blog. It’s a good sign when a project offering giveaways or airdrops has:

  • A strong team. You should be able to find the person or people who are building the NFT project.
  • A clear vision or roadmap.
  • A growing community.

How and Where to Buy NFTs: A Beginner’s Guide

Few predicted NFTs would suddenly become the talk of the town in 2021 when they were first introduced in 2014. Reports show that NFT trading volume was around $10 million in Q3 2021, a massive 704% increase from the previous quarter. This was just the start.

To many, NFTs add a visually appealing and creative element to the crypto world often perceived as excessively techy and complicated. 

Afterimage, audio, and video NFTs too hold, with NFT shards on their way, crypto investors are scrambling to jump on the fast-moving NFT bandwagon in time. 

If you wish to become an NFT investor, this article will explain the steps of how to buy an NFT and where to buy them, introducing you to the most popular marketplaces.

Where to Buy NFTs

There are different marketplaces to buy different types of NFTs and each levy a specific fee for transacting on their platform, so you should aim to choose a cost-effective platform for buying your NFTs.

OpenSea

OpenSea, established in 2017 by Alex Atallah and Devin Finzer, is the biggest marketplace to buy, sell, and trade different types of NFTs across marketplaces and Blockchains. The company is based in North America and has its headquarters in New York City.

The platform hosts around 30 million NFTs on Ethereum, Polygon, and Klaytn blockchains. Apart from providing a platform to trade in NFTs, Open Sea aims to provide an integrated marketplace where developers can build and launch their NFTs. It supports Ether and around 150 other crypto tokens. 

So you can use the OpenSea marketplace for buying a range of NFTs such as art, game NFTs, sports and music NFTs, utility NFTs such as keys to own gaming collectibles or gaming DAOs, enter particular Discord communities, and so on.

Binance NFT

Binance is a crypto exchange as well as a popular NFT marketplace. It was established as a crypto exchange in 2017 by Changpeng Zhao and was based in China. Later, the company headquarters moved to the Cayman Islands.

People can buy, mint, and trade NFTs with the Binance NFT marketplace. It hosts some top NFT creators such as X-Metaverse, Big Time Studios, NFT_Pride, NFKings, and Seek Tiger. You can access different NFT collections such as Mafia Land NFTs, DinoX World Avatars, GiiiO role NFT, X-Metaverse Box, and Atlantis Metaverse Genesis NFT. Binance NFT also hosts features such as the mystery box feature from time to time where players get a chance to win rare and unique NFTs.

Aside from Gaming NFTs, the platform also offers NFTs from categories like Art, Sports, Entertainment, Collectibles, E-sports, and Premium NFTs.

Foundation

The Foundation marketplace brings creators and collectors together on a platform to build and trade NFTs. It was established in February 2021 and is owned by Kayvon Tehranian hailing from San Francisco, California. Through Foundation, collectors can mint our buy images, video, and 3D artwork. A creator can create an art NFT on Foundation only through an invitation received by another creator, unlike other NFT platforms.

Rarible

Rarible was founded by Moscow-based Alexei Falin and Alex Salnikov in 2019.  It is headquartered in Delaware, United States. It hosts NFTs on Ethereum, Polygon, Tezos, and Flow blockchain and features a massive NFT collection ranging from art, photography, games, metaverse, music, domains, DeFi, Memes, Punks, NSFW, etc. 

The software-giant Adobe partnered with Rarible in Dec 2021 to display content credentials of the listed NFTs to make it easy to protect and verify digital content.

SuperRare

This NFT marketplace was launched in 2018, where NFT lovers can collect and trade mainly art-oriented NFTs. 

The platform introduced its token in 2021 when the artists and collectors in the community formed their DAO. Some of the prominent investors at SuperRare include Mark Cuban, Ashton Kutcher, and Samsung Next. The company is owned by John Crain, Johnathan Perkins, and Charles Crain and is based in the United States.

Project Specific Marketplaces

You can also buy specific NFT assets from their respective marketplaces. For example, NBA Top Shot is the marketplace to purchase official GIFs from the National Basketball Association. There is also an NFL All Day market for limited-edition NFL moments. Music lovers can visit the Musician Marketplace to buy NFTs of music compositions and platforms like Async Art, explicitly meant for programmable art. 

There are dedicated marketplaces for particular NFT-based game items, such as Axie Marketplace for items used in the popular ‘Axie Infinity’ game. It also has its own token, and the users should have these tokens to buy things from the Axie Marketplace. Mintable is another platform for unique music, art, games, animation, and media collectibles.

SolSea, another marketplace on Solana, lets creators mint NFTs with embedded licenses and display the Rarity Rank of the NFTs listed. 

Other NFT marketplaces include Nifty Gateway, Thetadrop, etc. NFTs on the Rarible and SuperRare marketplace is also available on OpenSea.

Let us now move on to the steps to buy an NFT.

How to Buy NFTs

  1. Buy Crypto Tokens from a CeFi or DeFi Exchange and Add Funds in the Crypto Wallet

First, you need to have the crypto tokens to possess your desired collectibles. You should buy the tokens supported in the NFT marketplace from where you wish to buy NFTs. Some marketplaces have their own tokens to transact. You can purchase these tokens from any DeFi exchange such as Coinbase, Binance, Gemini, etc. 

Once purchased, you should send the tokens to your wallet, like the Metamask wallet, to be able to use them for the purchase. You can check here if you want to learn how to set up the metamask wallet. Remember to have sufficient units of the crypto token in your wallet to pay for the NFT and the Gas fees involved in the transaction; the Gas fee is the transaction charge for the computation effort involved in facilitating transactions on the Ethereum Blockchain. Gas fees vary according to the traffic on the network. 

  1. Open the Marketplace

You can now open your chosen NFT marketplace and register on it. You will then scroll through the different types of NFTs offered. You can filter through the various collections offered to hunt for the NFT you wish to possess.

  1. Place Your Bid

You will find items under ‘Auction,’ where you can bid the price you wish to pay, or you can buy the item directly. NFT sellers auctioning items provide the Auction time, the previous selling price, and the cryptocurrency they are accepting from the buyers on the marketplace.

  1. Payment

Link your wallet to the marketplace using the ‘Connect Wallet’ button to proceed with the purchase. Once the transaction is successful, you will see the amount deducted and find the NFT stored in your wallet. You can also store your NFTs on offline hardware wallets such as Trezor or Ledger.

The NFT value is generally determined by markets, with floor prices naturally setting the bottom-end range. Other factors could be the uniqueness and the artist’s reputation.

Final Thoughts: Keep Your NFTs Safe! 

This should be about everything that you need to know for you to be able to buy an NFT. One last word of advice: if you are an NFT enthusiast and wish to mint and trade NFTs, you should be careful of NFT scams that can make you lose your crypto funds and NFTs through phishing attacks on your crypto wallets. 

Keep in mind NFTs and cryptocurrency is very new and they can be volatile– you should never invest more than you can afford to lose in a volatile market such as NFTs.

Layer-1 vs. Layer-2 Blockchains: What You Must Know

Bitcoin did the heavy lifting of creating a peer-to-peer decentralized and tokenized financial network. One person can send another person halfway around the world $1,000,000 in BTC for a paltry $20, sometimes even as low as a dollar and change. 

The problem is that microtransactions, such as sending a friend $4 for a cup of coffee, cost the same. 

Similarly, Ethereum created an entire galaxy of possibilities for DeFi, NFTs, and other decentralized applications. However, the breadth of its value has also been one of its detractions– as network gas fees skyrocket in times of extremely high traffic, making using the network ludicrously expensive for users and developers alike. 

CryptoKitties, an early sensational NFT game, nearly ground Ethereum’s network activity to a halt in 2018 due to the throng of transactions. Even today, gas fees can be hundreds or thousands of dollars to mint a new Ethereum-based NFT. 

However, problems are usually followed by problem solvers. Hundreds of developers have dedicated their professional lives of late to either building decentralized apps to help scale projects like Bitcoin or Ethereum or creating more scalable networks from the ground up. 

Layer-1: The underlying blockchain architecture. For example, Bitcoin and Ethereum.

Layer-2: A network that sits on top of Layer-1, which facilities network activity. For example, the Lightning Network and Raiden Network.

The following Layer-1 vs. Layer-2 blockchain guide explores both approaches and how they contrast. 

Layer-1 vs. Layer-2 Blockchains: The Basics

Layer-1 updates usually involve consensus protocol changes or sharding

As you may know, Bitcoin and Ethereum use a gawky but effective consensus protocol called Proof-of-Work (PoW). It’s good at what it does because it works. However, as network activity grows, its limitations become unbearable for many. 

PoW requires miners to solve cryptographically-difficult equations via computational power– hence Bitcoin mining facilities that are just warehouses with specifically designed computers running 24/7/365

At times, transactions can take way too long for convenience’s sake and become very expensive. Bitcoin can manage about seven transactions per second, whereas Ethereum can do 15-20. 

Proof-of-Stake (PoS) is a relatively newer protocol; rather than computation power, it relies on people (validators) staking a certain quantity of holdings to validate transactions.

Changing consensus algorithms can be a divisive ordeal, and switching from PoW to PoS on a network as large as that of Bitcoin or Ethereum would require achieving agreement among the majority of participants, which can be extremely difficult. 

Sharding is another Layer-1 scaling strategy. Sharding breaks transaction sets into smaller chunks called shards, which the network can process at a much faster rate. Think of cutting a PBJ sandwich into small pieces (shards) versus eating it bite by bite. Each small piece you eat is a finalized transaction, whereas the latter approach would require the whole sandwich to be eaten before the transactions are final. 

Attempting to implement scalability measures on a Layer-1 blockchain would require a full or partial network update, which is a slow and contentious process; if things go sideways, the entire network could face enormous damages. 

Many projects have been launched to provide users the scalability that the more legacy cryptocurrency projects have struggled to do. 

For example, chains like Solana, Cosmos, and Cardano (yet to launch anything) have emerged in attempts to unseat Ethereum as the most popular blockchain network for dApps, primarily targeting its scalability issues and low-hanging fruit. 

The user experience tends to be much faster and cheaper on the newer Layer-1s– transactions on Osmosis, a decentralized exchange built on Cosmos, cost around a penny. In contrast, the Ethereum DEX UniSwap can cost dozens or hundreds of dollars. 

However, the opportunity to scale the world’s most popular Layer-1s instead of launch new ones from the ground up is an admirable and lucrative challenge accepted by many. 

They do so through Layer-2 blockchain innovation

Layer-2: Attempts at Scalability

Layer-2s are essentially sandboxes for creativity with minimal or zero disruption to the underlying network.

There are two types of Layer-2 blockchains: state channels and nested blockchains.

A state channel allows for two participants who would otherwise interact on the blockchain to interact off the blockchain, limiting the congestion of the network. 

Imagine Bitcoin’s or Ethereum’s blockchain as a 10-lane superhighway with bumper-to-bumper traffic. A state channel would be the back-road approach you could take to avoid driving into a slow, expensive network and get to your end destination at a fraction of the time and cost. 

Here’s how state channels work: 

  1. A blockchain segment is sealed off through a smart contract or multi-signature means, where all participants agree on the conditions. Lightning Network and Raiden Network used Hashed Timelock Contracts (HTLCs) for their state channels. 
  2. The transaction participants can then directly interact without needing to submit their request to the miners on the Layer-1. 
  3. When all the transaction sets on the state channel are complete, the final state is added to the blockchain. 

So, while a transaction is technically not “final” until added to the blockchain, state channel projects like Bitcoin’s Lightning Network and Ethereum’s Raiden Network effectively carry out the role of policing and verifying transactions. 

The idea is that these “batched” transaction blocks can effectively internally settle; when they do, the entire batch is added to the blockchain. As such, Lightning Network enables fast microtransactions (low fees, fast settlement), and Raiden does the same thing for Ethereum’s broader functionality. 

However, state channels have some limitations. 

Nested blockchains aim to increase scalability exponentially, whereas state channels are more linear. 

Ethereum is a popular breeding ground for decentralized apps to solve scalability issues. OmiseGO, for example, is experimenting with a nested blockchain scaling solution called Plasma. 

In Plasma, multiple levels of specific-use blockchains sit on top of the leading blockchains in parent-child connections. The parent chain then dedicates specific work to child chains, such as a social network or decentralized exchange.

The root chain still calls all the shots and sets the ground rules, but nested blockchains relieve some load. 

Final Thoughts: What You Should Know About Blockchain Scalability

While the differences between Layer-1 and Layer-2 solutions might seem exclusively technical, it’s worth considering that by collecting NFTs, holding tokens, and using dApps, you’re the direct stakeholder in the whole ordeal. 

While Ethereum enjoys a considerable first-mover advantage for NFTs (and DeFi), boasting multi-billion-dollar dApps like OpenSea, competitors are gaining on its tail. 

As an NFT investor or creator, being aware of broader industry trends like scalability is an excellent way to keep your ear to the ground, whether that be for the purpose of finding the next BAYC (on another chain) or creating the next homerun NFT brand for a diehard layer-1 alternative. 

What is a Rug Pull in Cryptocurrency?

A rug pull is a type of scam where the team of a cryptocurrency project suddenly exits the project, running away with investors’ funds.

Rug pulls occur particularly often on decentralized exchanges (DEX) and in the NFT world.  

DEXs allow users to trade cryptocurrencies without intermediaries; well-known examples include Uniswap, Balancer, and PancakeSwap. There is no central authority on these decentralized exchanges and users can trade anonymously. They’re primarily used to swap one cryptocurrency for another.

A typical rug pull scenario unfolds as follows. Malicious developers launch a new token and list it on a DEX. Investors can easily exchange more established tokens like ETH for this new token. Once enough investors’ funds accumulate in the liquidity pool (LP) for this seemingly legitimate token offering a high APY, developers quickly dump their holdings and drain their funds, and the new token’s value plummets to zero.

The year 2021 didn’t fall short of such scams. According to a report by Chainanalysis, this type of maneuver was the most popular one among the whole crypto fraud varieties in 2021, accounting for 37% of all scam revenue.

Rug Pull Example #1: Fake Project Forks on OlympusDao

Imposters exploited the popularity of meme coins among crypto traders by using a dog-themed logo inspired by the Greek god of Anubis depicted with a dog’s head. Developers presented the fake project AnubisDAO as a fork of the decentralized reserve currency OlympusDAO and launched the project’s ANKH token on the Copper platform. 

The developers used pseudonyms, and the project had neither a website nor a whitepaper. Nevertheless, $60M was raised in WETH, which disappeared from the project’s liquidity pools just twenty hours after the launch.

Rug Pull Example #2: Binance Smart Chain Forks

The Binance Smart Chain (BSC) saw multiple headline-worthy rug pulls. Meerkat Finance, a fork of the Yearn Finance protocol, was supposed to be a yield farming pool. After the launch, $31M in Binance token, BNB, disappeared from the project’s LP. It’s still not clear if this was a real rug pull case. However, the projects’ Twitter accounts disappeared along with the investors’ money which is a strong indicator that the project team was involved with the scam.  

Another BSC rug pull case is the TurtleDex project, whose developers ran away with $2.5 million that had been raised as 9,000 BNB. The team drained the funds from the Binance native DEXs Pancake Swap and ApeSwap and sent them to multiple wallets to sell on the Binance Exchange.

Other projects rug pulled on the BSC DEXs are Defi100, Uranium Finance, and Stablemagnet. Defi100 marketed itself as a synthetic index token based on the total market cap of the DeFi sector. 

Rug Pull Example #3: Squid Game

When the Netflix series Squid Game soared in popularity, imposters came up with a Squid coin idea. It was supposedly a play-to-earn cryptocurrency project that promised investors to participate in online games inspired by the hit series. It was launched on Pancake Swap. 

There were many warning signs for the potential investors, like an unprofessionally written whitepaper and a recently registered website. Nevertheless, the team exit scammed with over $3M investors’ funds after the Squid currency peaked at $2,861.

Rug Pull Example #4: Fake Uniswap V2 Fork

Uranium Finance claimed to be an automated market maker (AMM) protocol forked from Uniswap V2. Stablemagnet billed itself also as an AMM. They cost the investors $32M, $50M, and $27M, respectively.

Rug Pull Example #5: Avalanche Meme Coin Goes Bust

In November 2021, it was Avalanche’s turn to experience its largest rug pull. 

SDOG coin, issued by SnowdogDAO, was supposed to be the first-ever meme coin on Avalanche, and it was launched on the native DEX Trader Joe. Eight days after the initialization, SDOG’s value plunged to $1,500 after skyrocketing to $6,000. 

The SDOG case was a bit different than a typical rug pull; the developers promised the community a buyback of the coins, meaning the company would repurchase its own coins. 

This tactic reduces the number of tokens in circulation, and in theory, supports a deflationary token environment. The actual rug pull occurred while $40M worth of SDOG coins was transferred from Trader Joe to the project’s own AMM. 

The buyback failed because an account swapped $10M worth of SDOG for other cryptocurrencies in the meantime. This was only possible if the account had the “challenge keys” required by the project’s smart contract, hinting that the rug pull was an inside job. 

Rug Pull Example #6: NFT Rug Pulls

Rug pulls can happen on centralized exchanges as well, as evidenced multiple times by NFT rug pulls. 

One of 2021’s most notorious scams was an NFT project called Evolved Apes. Thousands of investors piled their money into Evolved Apes, whose developer ran away with $2.7 million.

Another NFT rug pull incident was Baller Ape Club, a collection of 5,000 NFTs supposedly inspired by the famous Bored Ape Yacht Club collection. On the drop day, developers directed the potential investors to a fake link that repeatedly showed a warning pop-up with a transaction failed message, although the transactions were successful. In the end, $2M worth of SOL was stolen from the investors.

Iconics, an NFT project also launched on the Solana blockchain, had promised its investors to deliver 8,000 unique NFT artworks. Instead, collectors received a random collection of emojis. Developers ran away with $140K.

How to Avoid Rug Pulls

If you don’t want to fall victim to a rug pull event, take notice of these red flags before investing in the brand new red-hot project.

  • A DEX loophole is that audits are not obligatory for token listings. Nevertheless, legitimate projects undergo audits to convince their investors. Be wary of projects that avoid this process.
  • Can you research the individual members of the development team? Are they all anonymous or pseudonymous? Do your due diligence, and note that fake faces and fake names are common on team bios. 
  • Add skepticism if a price soars in value exceptionally fast without a fundamental cause.
  • Excessive promotion can be another warning sign.
  • Does the project have an official website, social channels, and whitepaper? If so, can you spot amateurishness in the presentation, such as rushed whitepaper typos?
  • Does the project have an active Discord or Telegram? How is its community?

Legitimate projects tend to have tens of millions of dollars in total liquidity, as well as some longevity that supports the project’s community. Look for the common elements in the cryptocurrency industry’s established projects, and try to find the same signs in upcoming projects.

Final Thoughts: Rug Pull Safety

Cryptocurrency rug pulls can trap both novice and experienced investors. Newbies are unaware of the risks behind the decentralized projects, and veterans fall prey to FOMO while seeking high-upside and hyped opportunities. 

It’s essential to know about different tools scammers use to exploit the cryptocurrency system and spot the projects built on a lie.  

lt Although blockchain is a secure, reliable, and stable technology by itself, don’t give the same sort of credibility you would to a project like Bitcoin or Ethereum to any new upstart just because it’s using the blockchain.