The explosion of NFTs has brought a wave of new creators into the ecosystem. But do these creators really know their stuff? Are they there to bring real value to the ecosystem? Or are they there to easily make a profit on the backs of newcomers? We can legitimately ask ourselves this question when we see certain projects and the Rug Pulls that are multiplying. So how to avoid NFT scams? First of all, we will have to fall into the meanders of influence marketing and cognitive biases.
NFTs and risks: the state of play
NFTs or Non Fungible Tokens are unique digital assets with specific attributes.
By their very nature, NFTs offer certain opportunities for collectors and this is the reason why we have seen some of the biggest collections today such as Bored Ape Yacht Club, CryptoPunks, CoolCats, etc. Initially for collection purposes, the field has diversified widely and with it the scams linked to NFTs.
The projects now often put forward a usefulness and even sometimes benefits in physics in addition to being part of a community. But these projects are very rare and it is difficult not to notice a recrudescence of imitation projects without utility. Dogs, cats, “rich bulls”, spinning gold coins, in short. A flock of collections with seen and seen again graphics without any real use behind the project in spite of roadmaps all more filled the ones than the others.
It is advisable to keep one’s head on one’s shoulders when going through them. If Ubisoft and other big names in video games haven’t done it yet, do you really think that a team of five people will be able to create a Metaverse in five months? Let’s be serious. And that’s why 99% of the past, present and future projects will end up in the trash, abandoned by the team in front of the magnitude of the (real) work to be done to respect their Roadmap.
NFTs: easy money or a path to scams?
People are beginning to understand that a nicely presented Roadmap is not necessarily synonymous with success, and we have seen more and more flipping operations in the NFT world. The practice of buying the NFT at launch at the base price and reselling it to try to make the biggest multiplier possible.
Like a listing on a new exchange, some NFT projects will see their Floor Price, the minimum price of an NFT in the collection, increase sharply when listed on the marketplace. The fastest ones will indeed be able to make a nice profit. But it is important to know that a project destined to die will also see its floor price drop. And here we are only talking about projects that go to the marketplace. Some project teams, once the public purchase phase is over, realize that the real work begins and simply abandon ship.
The problem? The buying phase has taken place. And so the team’s portfolio has received the funds spent by the buyers. So you’re not immune to seeing project members walk away with the wallet and thus a nice profit. Let’s take a simple example: an NFT pool of 10,000 tokens, a starting purchase price of 0.3 ETH. If the team sells even a third of its reserve, or 3,333 NFT, then the team will have collected 1,000 ETH. The equivalent at the current price of $2,500,000. This easy money has obviously attracted a whole new generation of “creators” to this universe. But newcomers also mean new NFT scams. We make you want to buy and we fill our pockets.
Making you want to buy: a practice as old as the world
We will see in a moment the real drifts of marketing in the field of NFT. But before that, we must understand the mechanisms involved.
These mechanisms have nothing to do with the arrival of NFT. And we can already see it with the toy collections of 20 years ago. Whether it’s Bratz, Beyblades spinning tops or Transformers type collections, they all use the same marketing principles inherent to selling a collection:
- Integrate a group
- The pleasure of research and exchange
- Rarity or quantity = respect from other friends.
These toys all used the same magic formula to make a successful collection:
- Create surprise
- Be highly mediatized
- Be accessible
- Offer new items very often
These techniques have always worked and use human psychology to do so. The point here is not to criticize this type of marketing but to criticize the fact that it is now used on speculative assets. So you have to be really careful when you see promotion for NFT projects. Many unfair marketing techniques are indeed used on more than dubious projects.
To avoid scams, you must first recognize the marketing
Let’s take a look at some of the practices you need to recognize to avoid NFT scams. The real problem comes from the fact that the communities present in NFTs usually have very suggestible people inside.
There are several reasons for this, such as the lure of having a token in the form of an image. The fact that we don’t feel like we are making a real investment. Influencing someone with aggressive marketing is not unique to NFTs. But there is usually a physical product behind it, and it is a purchase, not an investment. NFTs on the other hand can very well have their price drop to 0. So beware of the various red flags that are visible when it comes to NFT scams.
1. Influencer marketing
Influencer marketing is used by all NFT projects. Quite simply. It’s the basis of making the project known by paying influencers to advertise it. The technique itself is not condemnable and is not, by nature, a negative point. However, beware of the type of influencers paid to use this marketing. Just like some dubious projects whose advertising was done by well-known influencers, some NFT projects are also dubious. And therein lies the problem. You shouldn’t believe “crypto-influencers” blindly on principle, but be even more careful with those who have nothing to do with the business.
A project that uses influencers with more than 2 million subscribers, with the sole purpose of bringing in a “community” even if they don’t know anything about the ecosystem is not a reliable project. So beware of this type of marketing. Find out about the paid influencers as well as the project.
2. The “NFT promoters
This is another type of influencer marketing. Twitter accounts that offer to promote your NFT project for a fee. Why are these accounts problematic when it comes to marketing? Well, simply because many of these accounts make several “Giveaways” per day, which are obviously promotion of the project they offer to win tokens for. And often, without mentioning that the content is promotional anywhere.
Worse, many of these accounts make rather dubious “Giveaways”. Contests, promising an NFT that usually appears expensive, against a like, a follow and a retweet. So far nothing unusual, except that it is impossible to find the results of these contests, both on twitter and on Blockchain explorers since the NFT number is not given. So unless you browse the 10 000 images of a project you will not find it.
It is therefore obvious that a project that has no qualms about using this kind of influencer is not likely to be a serious project. These are often projects looking for a large community in order to sell to as many people as possible, as is the case for “basic” influencer marketing. A project with a real utility and a team that believes in its project does not need this type of publicity.
3. From gambling to lottery: the lure of winning
Another type of marketing and even project has also appeared: the so-called “lottery” projects. The principle is very simple since it is the same principle as a casino or a raffle. Let’s take an example to better understand the principle.
100 NFT are on sale at a price of 1 SOL. When you buy one of these NFTs, you are technically eligible for a lottery among the 100 NFTs. You can, in essence, be drawn to win the big prize. You are promised, for example, to win half the cash if you are drawn.
It looks great on paper, the concern is the “cash”. That is, to begin with, these projects will usually only draw if a certain number of NFTs are sold. Let’s say everything is sold to make it simple. You would have a one in one hundred chance of winning 50 SOL in our example, or at the current price $4400.
In itself, if you enjoy the casino, this kind of project is not a concern. The problem, or rather the problems, are elsewhere.
First of all, you don’t know how the draw is made. Remember that in France, gambling is prohibited without a license. And that even with a license, a bailiff must verify it. Secondly, when the team is going to transfer the money to you. Indeed, if the team takes a long time to transfer the cryptos in question to you, it is not said that the price is the same as when you bought.
The third problem is when you want to withdraw the money. On a basic lottery, you would be exempt from taxes because it is a win from gambling. But since you are receiving it in crypto here, in order to withdraw it you will have to comply with the tax laws of the country where you live and it will not be counted as a gambling win. You will most likely have to pay additional fees on this win.
The most experienced will have understood that this type of project is not an investment, but clearly a hidden casino. Sometimes it’s even an NFT scam just to steal your money. You will win by being drawn, if there is a draw, but you will get less than what you were promised. And if you don’t get drawn, you’ll just lose out, with no use and no way to resell your NFTs.
4. Using FOMO
The Fear Of Missing Out (FOMO) is one of the great enemies of the crypto investor. But even more so if you plan to invest in NFTs. Simply because it is easy, as shown before to make you want to buy. And on top of these marketing techniques can be added the techniques that you have all seen on the Internet: those of dropshipping.
It is marked FOMO Fear of Missing Out. Which is a technique used in NFT scams to make you want to buy items from the collection at all costs.
You can see what you are dealing with. In the NFT world this is summed up in another way: Pre-sales. If a project tells you that it has sold its entire presale, it doesn’t mean anything. A presale is a small, limited quantity sold during the biggest marketing phase of a project. The goal? To get people to buy NFTs of the project, sometimes at reduced prices, before the public sale. Why? So that these same people advertise the project by showing off their brand new NFT and, with the help of euphoria, make others want to invest.
The project will therefore put forward a pre-sale that will be out of stock very quickly, in order to let you know that if you are not present during the public sale, then you will miss the project of the year and therefore a good profit. Because who says out of stock, says Floor Price that increases because people will want to acquire pieces of the collection. This is not the case. A pre-sale out of stock quickly does not mean that the project will be. And again, a good team that believes in its project and its appeal to the community will not need to make you believe that. The NFTs will sell out on their own.
5. An unprofessional project
Let’s say you haven’t seen any of the alerts above. Another red flag may be the unprofessional project team. You joined the team’s Discord, you even got a Whitelist (whitelist allowing early access to public sale or even pre-sale) and you intend to invest in the project.
A team that constantly delays the buying process, that does not communicate or communicates very little about the problems encountered will be an additional alert to at least reduce your exposure to the project if not abandon the idea of investing.
As explained at the beginning of this article, it is only after this process that the real work of the project team begins to deliver their roadmap. If the project launch already fails, it is obvious that keeping a roadmap will be very complicated and you risk investing in a project that is doomed to fail.
To avoid NFTs scams: usefulness first
One way to avoid NFT scams is to first advocate the usefulness of a project you want to invest in. Indeed, it is now important that NFTs bring something to the ecosystem. For example, we are seeing the emergence of NFT lending platforms or NFTs used to fight against misinformation.
You can ask yourself a very simple question: “What does the project bring to the ecosystem? What do I need this investment for? If you are not able to answer this question, there is already a concern about the usefulness of the project and therefore its possibility of being completed. If you don’t have the answer to this question, you can also ask yourself “Do I like this NFT?” because it is obviously important to remember that you are in control of your investments. If the NFT in question has value to you, whether it’s sentimental or you like the art behind it, you shouldn’t necessarily deprive yourself.
With the explosion of the ecosystem, many people will try to make money on your back. Knowing how to recognize the marketing drifts and the dangers of NFT investment is therefore essential to any good investor in the field in order to avoid NFT scams. The usefulness of a project can be a guarantee of its viability but it should not be forgotten that some collections are purely artistic and very recognized. At this stage it is up to the tastes and colors of each.