From notorious schemes to how to avoid them

Backtrack – the dark side of the crypto and NFT space. Imagine: You have invested in a new cryptocurrency token or NFT project. You feel amazing! But suddenly the team behind the sign disappears and takes all your funds with them. Unfortunately, you’ve just fallen victim to a scam – one of the most despicable types of crypto and NFT scams out there.

So what exactly is a rug pull? Kickbacks occur when fraudulent developers start a new crypto token or NFT project, inflate its value through manipulative tactics, and then make off with the funds. Ultimately, they leave investors with worthless assets. Unfortunately, this is a type of scam and decentralized finance exploitation that is becoming more common by the day.

To protect yourself from carpet pulls, you must first know how to identify them. Before that, however, it is essential to understand the types of carpets that can leave unsuspecting investors high and dry. In this guide, we’re going to dive into the different types of carpet pulls, some of the most notorious schemes, and how we can try to avoid them.

Back Pull Meaning: What is a Back Pull?

In the world of crypto, pullbacks are a dreaded event that can leave investors with a worthless asset. But what exactly is a rug pull?

A pullback is a fraudulent act in which the creators of a project, typically in the NFT, crypto, defi and metaverse spaces, abandon the project and run away with the investors’ funds. The term “rug pull” comes from the analogy of someone pulling the rug out from under your feet and making you fall.

Withdrawals can happen in various ways, such as when the creators of a project use false identities, promise high returns on investment, or create a false sense of urgency to get people to invest quickly. They can also manipulate the market by buying and selling the project’s assets. This creates a false sense of demand and artificially inflates the price. Then they dump their tokens, leaving investors with worthless assets.

Mattress covers can take two different forms. These are hard and soft pulls. Hard pull occurs when malicious developers code backdoors into their token’s smart contract. Essentially, they set up a scam from the start. Liquidity stealing is also a type of hard pull, where the project creators withdraw all the coins from the liquidity pool, leaving investors with a worthless asset.

On the other hand, soft pullbacks involve developers quickly dumping their crypto assets, leaving remaining investors with a devalued token. It can also mean the act of project or token founders taking investor money and then not fulfilling promises, such as donating funds.

How does a carpet pull work?

Understanding how carpet pulling works is essential to protecting yourself from financial loss. Rather than being a single type of scam, backhoes are a category of fraudulent projects in which developers create a fake project with the goal of tricking investors into buying into it. The scammers behind these projects usually create a hype around the project and attract investors with promises of quick and high returns. However, after investors put in their money, the scammers pull the rug out from under them by draining the liquidity pool. Ultimately, investors leave worthless assets.

In the NFT space, carpet pulling often involves fake projects sold as collectibles. But it’s really just a collection of random images or plagiarized content. In DeFi, pushbacks can occur when projects are created with faulty code that allows developers to steal investors’ funds. In the metaverse, kickbacks can happen in virtual worlds when scammers create fraudulent projects that claim to offer a way for users to make money within the game or platform.

How to pull a rug

To avoid a carpet pull, it is important to do thorough research before investing in any project. It may take some serious digging, but there are things to look out for.

DYOR: Research projects thoroughly

When it comes to investing in any project, it is essential to do your own research thoroughly. This means taking the time to research the project, its founders, promoters and the contract. Be sure to explore the project’s website and social media profiles to get a sense of its overall vision and goals. Look for transparency, a clear and reasonable plan, and a solid community that supports the project. Remember, always do your own research.

Seek Legitimacy

One critical aspect to consider when researching a project is its legitimacy. Established projects or backing from established brands and founders can provide some credibility and give you more confidence in the project’s potential success. Furthermore, you can verify the legitimacy of the project’s smart contract by checking the contract’s code on a blockchain explorer.

By doing your own research and looking for legitimacy, you can better protect yourself from potential scams or kickbacks in the NFTs, DeFi and metaverse spaces. Always remember to trust your instincts and approach any investment with caution.

Biggest mat in the NFT space

There have been several high-profile carpet moves in the web3 space over the years. Let’s look at some examples.

Pranksy Rug-Pulled by Fake Banksy

NFT collector Pranksy clicked on a link to Banksy’s website in Discord. This page included a link to a website holding an auction for an NFT called ‘Great Redistribution of the Climate Change Disaster.’ Presumably it was a legitimate Banksy artwork.

After doing some due diligence, Pranksy decided to bid. Ultimately, he won the auction and paid about $336,000 for the NFT. However, he soon realized that all traces of the NFT auction had disappeared from the Banksy website, leading him to believe that the listing may have been fraudulent. However, the funds were surprisingly refunded a few hours later, without any explanation.

It is still unclear whether this was an elaborate hoax orchestrated by Banksy himself or whether his website was hijacked by scammers.

Evolved Apes

Evolved Apes, a 10,000-piece NFT project, promised investors an exciting game where the characters would fight each other and win rewards. Unfortunately, the project turned out to be a scam. The anonymous developer, who went by the name ‘Evil Ape’, suddenly disappeared after the sale. Furthermore, they deleted all social media accounts linked to the project.

The developer managed to get away with about $2.7 million. This included funds that were supposed to be used for project-related expenses, such as marketing and game development. Additionally, contest winners were left without their NFT prizes, and the artist was never paid for their work.

Bored bunny

Bored Bunny was one of the most important NFT projects of 2022. It actually received glowing endorsements from celebrities like French Montana, Jake Paul and Floyd Mayweather. The 4,999 NFTs sold out within hours, minted for 0.4 ETH each. However, it wasn’t long before insiders began to suspect that the founder was defrauding investors.

Once the second collection sold out, the floor price dropped dramatically. Additionally, the development team disappeared and walked away with $21 million. As if that wasn’t bad enough, the remaining team launched a third collection, Bored Mutant Bunny, with 3,000 NFTs at 0.25ETH. By this point, investors realized the project was a fraud, and it couldn’t sell.

Is carpet pulling illegal?

So, is carpet pulling illegal? This is a question that many people in the NFT space are asking, and the answer is not that simple. While the NFT space is still largely unregulated and mostly lawless, the law is catching up with scammers who use kickbacks to steal investors’ money.

Two men have been arrested and charged with money laundering and fraud over a kickback scheme involving the NFT project, Frosties. Ethan Nguyen and Andre Llacuna allegedly made about $1.1 million through the scam. However, they disappeared after selling their NFTs, and investors lost all their money.

Eventually, the rise of backpacking caught the attention of regulators and law enforcement agencies. In fact, the US Securities and Exchange Commission is currently investigating several NFT projects.

Stay safe with NFTs

Using NFTs can be a fun and exciting way to invest in digital assets, but it is important to remain vigilant and aware of possible scams such as backdraws. By thoroughly researching projects and looking for legitimacy, investors can reduce their risk of falling victim to fraud. In addition, it is important to use secure storage options such as a Ledger wallet to keep assets safe, even in the event of a scam. By taking these precautions, investors can enjoy the benefits of NFTs while minimizing their risk of financial loss.

Finally, always remember to do your own research and if something seems too good to be true, it probably is. Trust your instincts and be careful when investing in web3 projects.

All investment/financial opinions expressed by NFTevening.com are not recommendations.

This article is educational material.

As always, do your own research before making any kind of investment.