NFTs and Carpet Pulls – How to Stay Safe?

NFTs are no exception to malicious attacks. Learn how to protect yourself from the devastating effects of NFT carpet shrinks.

How to Avoid NFT Carpet Shrinks

Change is a constant in markets, and we’ve seen NFTs take a variety of shapes and forms since their inception. Unfortunately, while the growth is undeniable, this crypto industry is grappling with a few scammers trying to take advantage of new entrants with their cash-grabbing attempts. This piece will show you how to detect NFT carpet pulls and avoid falling victim to one of them.

What is NFT Carpeting and How Are They Formed?

In its simplest form, a carpet pull refers to an exit scam where the founders or lead developers of a project join investors’ funds after fundraising. These founders often come with attractive plans, but they neither run projects nor help investors get a return on their capital. Rug pulling is not the new scam in crypto, but a recent one is the squidgame token rug that has left millions of users helpless after the founders cleared up to $3 million in user funds.

For NFTs, there are numerous ways in which carpet shrinkage can occur. First, these projects may offer pre-sales of their NFTs with grand promises of the next best thing and a fixed release date. Then, after minting the coins, the common sequel includes:

  1. Dumping: The founder sells his assets when the hype is at its highest and disappears. Some may own up to 40% of the NFT collection, and as expected, prices will eventually drop, leaving illiquid assets to unsuspecting traders.
  2. Hard durability refers to when developers enter smart contract codes to prevent NFT holders from selling or creating backdoor access that only allows developers to sell their tokens.
  3. Developers can also pair NFTs with an altcoin, raising the price by pumping that altcoin and then removing liquidity.

Warning Signs of NFT Carpet Pulls

NFT carpet pulls often come with early red flags such as:

  1. Anonymous Founders: While the concept of anonymity in crypto startups is still the subject of controversy, it is always safer to set up your tent with known and reliable founders. Anonymity may predispose them to carpet pulling because no one can interrogate them or take legal action if things go wrong. As an NFT enthusiast, you should examine all available social media platforms and websites and determine that the names of the founders are real and not just pseudonyms.
  2. Uncertain Plans: There is a certain amount of quality required in a project that plans to stay in the long run. Many NFT carpet pulls often lack clear plans in their white paper and may even include duplicated plans. A whitepaper needs to be more than a promotional page, and a project like this just wants to attract people. More emphasis should be placed on use cases, tokenomics, and benefits, with charts and statistics supporting these claims.
  3. Social Media Engagement: Social media engagement now has several facets, with the ease of buying bots and sponsoring content through paid influencers. First, however, you need to remember that projects that will stand the test of time strive to produce quality work, seek and review feedback frequently, and minimize mistakes. Also, let’s say the project has tremendous dissonance and telegram follow-ups, but decent engagement aside from the traction that comes with the promise of whitelists and other rewards. In this case, you should be wary of them.
  4. ‍‍Liquidity: The liquidity attracted to a project can be another sign of authenticity or carpet pull. Generally, you need to check the amount and time it’s been there and the percentage ownership of the tokens. If liquidity is locked in, that is also a good sign. Good projects think in years, not weeks or months.

As a result

Avoiding NFT carpet pulls is ultimately all about due diligence and noting early warning signs. Therefore, you should always do proper research before investing in any project.

Fortunately, you can stay away from carpet shots by investing in verified projects at AirNFTs.

Open our app to start trading NFT now!

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