As the NFT industry grows, so does the number of scams and frauds. Knowing how to check to see if an NFT project is legit before investing any of your money is important.
When considering NFT projects, it’s important to do your research to avoid being scammed. There are a few key things that you can look for to determine if there are any red flags.
What is a rug pull?
Before I share the list of things to look for, it’s important to understand the definition of a rug pull (or rugged project). You will often see this term used when referring to NFT project scams.
A rug pull is when the team behind an NFT project suddenly abandons it, taking all of the money raised with them. This usually happens when the project hasn’t been fully developed yet, and there is no product to show for the money raised.
The team will often disappear without a trace, leaving investors with nothing. This is a big problem in the relatively new and unregulated NFT industry.
» Learn more: Why are some NFTs valuable?
Let’s ensure you understand how to avoid being scammed through a rug pull.
Checklist for evaluating NFT projects and avoiding scams
Here is a list of 10 things to watch for when considering any NFT project:
1. Who is behind the project?
The first thing you can do is investigate the project’s team. Research the team members and try to learn more about them.
Are they experienced in the NFT industry? Do they have a good track record?
You can also check to see if the team is active on social media. If so, what are they saying about the project? Also, check team members’ personal social media accounts to see if they are promoting the project there.
2. Review website and social media accounts.
Next, take a look at the NFT project’s social media accounts. Are they active? Do they have a strong following?
Check to see if the team is regularly posting updates about the project. If they are, that’s our first good sign.
Also, observe how engaged the online community is.
Do people seem interested in the project? Are they asking questions? How many likes, shares, retweets, etc., are their posts getting?
Locate the NFT project website. Is it well-designed and professional looking?
3. See if an artist has a blue checkmark on OpenSea.
Sometimes if an artist is known and has a recorded history, you will see a blue check mark next to their name on OpenSea or other marketplaces.
This is always a good sign as it means the marketplace has verified and recognized them.
4. Check the NFT mint price.
The price of NFTs can be a helpful indicator of the legitimacy of a project.
In most cases, too low or too high is not a good sign (this is my rule of thumb).
- It probably is if the NFT mint price is too good to be true (too low). This could be because the NFT is not backed by anything of value or because the team is not confident in the NFT.
- If the NFT mint price is too high, it could be because the team is trying to take advantage of investors.
It’s hard to say for sure because prices can vary from project to project. Market conditions are also a factor in pricing. But, in my experience and personal opinion, the average mint price of a solid project is between 0.05 – 0.25 ETH.
» Learn more: How to mint an NFT
5. What does the project promise (roadmap or whitepaper)?
When evaluating NFT projects, it’s important to grasp what they promise. Check their NFT project roadmap (or whitepaper) and verify its realistic.
A roadmap is a plan that outlines what the team plans to achieve and when they plan to achieve it.
Some NFT projects overpromise and underdeliver. It’s important to discover if the team has a clear plan and timeline for the project.
If they do, that’s a good sign.
6. Do you feel at home in the community?
When you’re looking at NFT projects, it’s important to confirm that there is a strong community around them.
A strong community is important for any NFT project because it shows that there is interest in the project.
A strong community can also help to promote and develop the project.
Check whether an NFT project has a Telegram group, Discord server, or any other active online community.
7. Screen for potential violations of intellectual property rights.
NFT projects potentially violating intellectual property rights are a big red flag.
This is because it shows that the team doesn’t respect other people’s property and could potentially defraud investors.
Investigate whether the NFT project uses someone else’s artwork, music, or other intellectual property without permission.
Here is an example of a hyped project that got rugged and where I lost money. Art Wars was a cool project with a real artist behind it. However, Opensea took down the project’s page for violating IP rights, and the people behind it abandoned it.
8. Watch how the project launches.
The launch of the project is also very important.
Check to see if the NFT project is launching on time.
If the team is late to launch the project, it could be because they are unprepared or trying to take advantage of investors.
If the project launch is being delayed, observe how the team handles it and how the community receives the delay.
9. Observe the secondary market after the launch.
The secondary market is where NFTs are traded after they are minted.
Watch to see how the NFTs from the project are doing on the secondary market.
Are they being bought and sold? What is the floor price? Is the price going up or down? What sale volumes do you see?
If it’s a project launching on the Ethereum blockchain, in most cases, you can check these parameters on the project’s Opensea page under the Activity tab.
10. Use “too good to be true” logic.
When you’re considering NFT projects, it’s important to use your common sense.
If something seems too good to be true, it probably is.
For example, if an NFT project claims to be the first of its kind or the best in the world, it’s probably not true.
It’s important to do your research and not take everything at face value.
Examples of rug pull projects
Image source: Chainalysis
Here are some examples of NFT scams so that you can learn about what to look for.
- Frosties project: Most recent NFT scam and rug pull of 2022. The team abandoned the project after raising over $1 million.
- Baller Ape Club: A collection of 5,000 NFTs on the Solana blockchain was valued at around $2 million when it was rugged.
- Evolved Apes: A 10,000-piece NFT project where an anonymous developer stole approximately $2.7 million of project funds.
- Iconics: An NFT project based on the Solana blockchain which was rugged. Scammers collected over 1,000 SOL worth approximately $156,000 USD.
- Blockverse: In another recent rug pull, this project generated around 500 ETH and then more than 700 ETH on the secondary market when the team just vanished.
These are only a few examples, proving that NFT scams are becoming increasingly common.
FYI: NFT projects and any crypto project might get hacked (e.g., the DAO attack), don’t mistake rug pulls for hacks.
» Additional read: How to evaluate crypto projects
Final thoughts
NFTs are a new and exciting technology with an abundance of potential.
However, because NFTs are still new, several scams and rug pulls are occurring. Researching and not investing in any NFT project you don’t fully understand is important.
I hope this article was helpful and you now understand how to check whether an NFT project is legit.