The runaway kings in the history of NFTs

Original Author: ERIC JAMES BEYER

Original Compilation: Kath, The SeeDAO

"Rug pull" (literally translated as "pulling the carpet") has no positive connotation. It means that either someone is going to fall flat on their face, or furniture is going to be overturned, or in the world of NFTs, it means that many people will lose a lot of money.

A rug pull scam refers to: project teams in the crypto world attracting early investors to join, then quickly abandoning project development. They either take the project funds and run away or sell off pre-minted assets. In either case, the goal is to siphon off all the funds from the project community.

For those project teams intending to rug pull, once the NFT prices rise to a satisfactory level, they will hurriedly transfer funds out of the project ecosystem, disappearing without a trace, leaving behind investors who have almost no legal recourse, along with their digital artworks and a sense of frustration. So now, welcome to the dark side of Web3.

In recent years, some high-profile rug pull incidents have become cautionary tales about the risks of NFTs. We have compiled a brief list of some of the most memorable (and costly) rug pulls that have occurred in this ecosystem. If there is any benefit to be gleaned from these incidents, it is that they have educated people on how to more effectively identify and avoid NFT scams.

Frosties Pulls Off a Cold $1.3 Million

Frosties launched on January 7, 2022, as an ice cream-themed collection containing 8,888 NFTs. Frosties heavily marketed itself as a "cool, delicious, and unique" project. Founders Ethan Nguyen (known as Frostie) and Andre Llacuna (known as heyandre) had built a sizable community on Discord and promised collectors merchandise, giveaways, and a fund to ensure the project's long-term development.

These NFTs were priced at 0.04 ETH each. That is to say, just a few hours after the NFT series sold out, the project team made off with 335 ETH (over a million dollars). Subsequently, the project's website and Discord quickly disappeared, and the sales proceeds were transferred to multiple wallets. Those who bought in and joined the community had no way to contact the founders, left with nothing but their digital artworks and a sense of dissatisfaction.

FROSTIES

Unluckily for Nguyen and Llacuna, this was when the Department of Justice began closely monitoring fraud cases in the cryptocurrency world.

Reportedly, on March 24, 2022, after two months of investigation, prosecutors from the Southern District of New York arrested the two and charged them with conspiracy to commit fraud and money laundering, on the grounds that they "promised investors the benefits of Frosties NFTs, but after selling out… absconded with the victims' assets, almost immediately shutting down the website and transferring the funds."

The case is still ongoing, but it is widely regarded as the Department of Justice's first NFT rug pull case, marking a significant moment in NFT history.

Big Daddy Ape Club

Big Daddy Ape Club was supposed to be an ape-themed NFT series planned to mint on Solana and sell on the Solanart marketplace, with a total of 2,222 NFTs.

As the largest rug pull project on Solana, Big Daddy Ape Club left investors devastated. Most rug pull projects at least show some NFT works before making off with the money, but Big Daddy Ape Club was different; the project managed to successfully rake in 9,136 SOL (approximately $1.3 million at the time), claiming it was for minting NFTs, even though these NFTs never existed.

Tweet Content: We have learned that Big Daddy Ape Club has rug pulled and that people have suffered losses. We take this attack on the NFT community very seriously and are taking steps to provide all assistance possible.

Unfortunately, just hours before the minting began, Big Daddy Ape Club shut down and disabled the project's Discord, and soon after, the project's Twitter account and website also vanished. Not a single investor received the NFTs they paid for.

The project had previously passed verification through Civic (a decentralized identity verification company), making this rug pull particularly infuriating. Commendably, Civic's CEO Chris Hart and the entire company are cooperating with law enforcement to apprehend these fraudsters.

Baller Ape Club Rug Pull Draws DOJ Attention

Another ape-derived NFT project team is having a rough time. Recently, Baller Ape Club's founder Le Anh Tuan was charged by the Department of Justice with conspiracy to commit wire fraud and transnational money laundering.

It is alleged that Tuan took $2.6 million from investors in Baller Ape Club, then deleted the project website and laundered the money. According to the Department of Justice, Tuan converted the funds into various cryptocurrencies and transferred them across several different blockchains, a process known as "cross-chain."

The Department of Justice has classified this case as "the largest NFT scam to date."

Evil Ape Scams the Evolved Apes NFT Community

The founder of Evolved Apes is an anonymous individual using the pseudonym Evil Ape. Just a week after the series launched, he managed to abscond with 798 ETH (approximately $2.7 million) from project investors. Evil Ape's Twitter account and the project website are no longer in existence.

EVOLVED APES

Evolved Apes had a total issuance of 10,000 NFTs. Ironically, the project's description was "lawless." The project originally aimed to create a battle game similar to Axie Infinity. However, it goes without saying that this game was never realized. Nevertheless, the series still exists on OpenSea, although the floor price has predictably dropped to 0.01 ETH.

Pixelmon's Attempt to Run Away

Pixelmon does not strictly fit the definition of a rug pull. However, it comes very close to the form of a rug pull and is regarded in the NFT community as a valuable lesson about hype and credibility. The project consists of 10,005 pixelated NFT characters, released on February 7, 2022. Prior to this, the project team had done quite well in building up people's expectations for the series and the project's prospects.

Pixelmon promised to create a AAA-level open-world adventure game, with its low-resolution pixel art evoking nostalgia, conjuring up a Pokémon universe set in "Minecraft." According to its founder Martin van Blerk, the team behind the project had previously worked at companies like Disney and Activision, which ignited hope that these NFTs would be unique once released. The Pixelmon team announced that the NFT minting would take place in a Dutch auction format, starting at a price of 3 ETH, further reinforcing this notion.

The initial 8,079 NFTs sold out within an hour of the minting event starting, with most buyers paying the full 3 ETH. By the end of the sale, the Pixelmon team had raked in 23,055 ETH (over $70 million).

Soon after, community concerns began to surface, as there was still only sparse information about the team's identity and game details. Moreover, the NFT artworks had not yet been revealed. Within hours of the release, the secondary market prices plummeted to around 1 ETH.

PIXELMON 5866 CREDIT: PIXELMON

On February 16, when the NFT artworks were finally revealed to the community, collectors were left bewildered. The final delivered artworks bore a stark contrast to the pieces previously used to entice the community. To put it mildly, the differences were enormous. These pixel art pieces looked very amateurish, with many even appearing ridiculous. It is not to say that pixel art or any form of art has no value in the NFT community; rather, community members felt that their money had been scammed. Many NFTs had rendering issues, were upside down, or even failed to render at all. Most designs were repetitive, with very little or arguably no variation.

Accusations were directed at founder van Blerk, who is believed to have siphoned funds from the project to purchase blue-chip NFTs like Bored Apes, Azukis, CloneX, and Invisible Friends. These accusations further fueled fears of a rug pull.

Tweet Content: @Pixelmon sold for 3 ETH each, raising over $70 million, and this is what we got… I think it's fair to call it a rug pull. Stop supporting money-grabbing NFT projects.

Although Pixelmon has since fixed the rendering issues, its founder apologized on Twitter, admitting that this NFT release (to put it mildly) was poorly executed. The project seems to be experiencing a rebound recently. Pixelmon's current floor price is 0.21 ETH, and some of the oddly unattractive NFTs have gained cult-like followings, with prices reaching 2 ETH, 4 ETH, and even 5 ETH at times.

In similar rug pull incidents, this is the best outcome you can hope for. Regardless, the Pixelmon case serves as a cautionary tale. In the world of NFTs, FOMO (fear of missing out) is a powerful yet sometimes dangerous thing.