NFT, like several cryptocurrencies that appeared on the blockchain, offered something catchy to users. Its unique operations and approach allowed it to grow faster than anyone expected.
In no time, investors were making money from the newfound system.
However, like everything that operates digitally, fraudsters have found a way to rug pull NFT games. One major event was the Squid game scam, where the developers abandoned the project and ran with individuals’ investments.
The anonymity and digital nature of NFT games also make this process much easier for people with malicious intent.
In other words, you could be making several thousand from an NFT game, but one wrong investment could swallow it whole.
Therefore, you must learn to protect yourself from people or organizations who rug pull NFT games.
Fortunately, this article offers you the best methods to save your money from rug pulls.
Table of Contents
- What is a Rug Pull?
- The Squid game rug pull
- How did squid game rug pull NFT games?
- Red Flags that Investors should look out for before investing
- How to avoid rug pulls?
- NFT projects to avoid
What is a Rug Pull?
Scams and frauds have different pseudonyms to be used under different circumstances and conditions. In the case of NFT games, this is known as a rug pull.
A rug pull is an unpleasant occurrence where innovators quit their projects and flee with investors’ money. This usually occurs in NFT games where users stake their money.
The game might forbid them from claiming their rewards, and in no time, the game is suspended or disappears from the grid.
Like most online scams, it isn’t easy to trace a rug pull to the source. Most of these fraudsters take advantage of the NFTs system of keeping a user identity secret, making it impossible to discover who they are.
Rug pulls are common in decentralized finance systems. Individuals can create toxic coin combinations (tokens) and advertise them on a decentralized exchange platform, pairing it with another popular cryptocurrency.
One of such scams was the Squid game rug pull.
The Squid game rug pull
Customers were drawn into the deceitful site of the Squid Game token because of its name that was based on the popular Netflix show.
Before it became non-functional, its developers falsely claimed they were partners with Big time industries like Open Sea, an NFT marketplace, and Microsoft.
Like a joke, its tokens skyrocketed from being worth 10 cents to a bizarre worth of $2,861. At that time, many investors didn’t find it weird.
Instead, they thought it exciting that they’d be getting more value for their squid tokens.
Unfortunately, these investors could not sell their tokens because the platform made it difficult. When they realized that something was fishy, it was too late.
The deceitful inventors sold their tokens and fled, leading the market to plummet till the token was nearly worthless.
How did squid game rug pull NFT games?
The founders did not necessarily block investors from selling their tokens. Still, they did make the process more complicated than it needed to be.
Things became twisted, mainly because its developers had initially launched two tokens – Marbles and Squid game.
The platform used both tokens concurrently. Before a player can sell the Squid game, they must have marbles which they can only get by playing the game.
New players will have to pay 456 SQUID to begin playing to earn marbles.
Therefore, if one SQUID is worth $1, it will cost $456 to play in the game. Soon, SQUID increased to $2,861, placing the entry fee at $1,304,616.
Because of its swift rise, several people became stuck with their tokens. To sell, they must have at least 456 SQUID in their account. By then, the price had become so high that buying would cost a lot. However, selling was also impossible.
Though the value skyrocketed to $2,861, it plummeted to a stunning $0.0007926 five minutes later. This was enough time for the creators to flee with the tokens.
Red Flags that Investors should look out for before investing
As with most scams, several glaring signs signified that the Squid game wasn’t as genuine as many thought it was. The fact that several investors could not see these flaws is baffling.
Below are red flags that were clear with the Squid game;
The website was substandard
The first sign anyone should have noticed was their site’s awful grammar and spelling errors. Aside from this, the creators made too many claims that seemed impossible to achieve.
Aside from claiming to be affiliated with Netflix and Microsoft, they also roped Elon Musk in.
On a closer inspection, you’ll realize that most of the developers on their site were fabricated. Its Telegram and Twitter accounts were also restricted, allowing only the developers to comment.
Investors could purchase but not sell coins
The most apparent loophole was the inability of investors to sell the coin. In other words, while investors could easily buy the coin, there were no easy methods to trade.
There have been other scams modeled after popular movies
It is not the first time that the popularity of a television show has been used to generate tokens. Earlier that year, there was the invention of Mando, a coin that drew inspiration from Disney’s Mandalorian.
The official launch of Mando’s website took place on March 25th and included numerous photographs of the series’ characters.
As a result, it was so convincing that many viewers believed they would miss out if they did not get involved with the coin. Fortunately, Disney swiftly warned users that it had no partnership with the coin.
Mando turned out to be a scam, and several investors lost a lot of money. With this experience, one would expect that the public would be more careful when venturing into any movie-themed coin.
How to avoid rug pulls?
There are several ways to avoid falling victim to fraudsters who create Rug Pull NFT games.
Look into the background and claims of any NFT project you intend to invest in
The essence of research cannot be overemphasized. Before jumping at any digital offer, ensure you study their whitepaper.
A whitepaper provides technical details about the game’s concept and its intentions for growth and development. You should look out for the following when reading a whitepaper:
The plot and mechanism of the NFT game: If the game’s concept doesn’t ring true to you, it might be dangerous.
- The developers: It’s not enough to read the developer’s name and credentials. You should run basic background checks to confirm they are legit.
- Tokenomics: You should understand the distribution of the game and ensure it is built for longevity in the marketplace.
- Websites and Social media handle: Go through their official page to ensure it looks professional. Also, refer to their social media platforms and notice how they conduct their activities. If anything seems fishy, don’t bother forging ahead.
- Their claims: If an NFT game claims to have affiliations with big-time industries, you should verify it first.
Also, make sure that their data does not contradict itself. The whitepaper may mention one thing, but the developers may state something quite different.
Scammers make mistakes, just like everyone else, and when they contradict themselves, it indicates that something is not right.
Take a look at the feedback
Take a look at what other people are saying about the game. Most NFT games have enormous fan bases and a great deal of excitement surrounding them. Though there’ll be criticism, they are rarely from the majority.
The level of competition in the game
If the game is buggy and has numerous issues, you should avoid it, especially if it contradicts what you expected. Remember that you could invest millions in a single game and stand a chance of losing it.
NFT projects to avoid
A newcomer to the NFT area should also avoid projects with large buy maximums. This is because the maximum NFT available for purchase at once is five.
Apart from the fact that huge ownership concentrations in a single project can wreck it, it also increases ‘whale risk.’ This means that a few individuals can throw their weight around and dramatically influence or distort the market.
It’s easy to get caught up in a rug pull due to the high rate of fraudulent activities. Therefore, investors should thoroughly understand the volatile and sensitive market before investing in NFT games. You can achieve this by reading document releases, checking technical information, and reviewing cryptocurrency white papers.