NFTFraud & Rug Pulling Schemes
Fraud issues in the NFT (Non-FungibleToken) space are a significant concern, largely stemming from the combinationof the high value of some NFTs, the relative novelty and complexity of thetechnology, and the lack of clear regulatory frameworks.
Here are some detailed descriptions ofvarious fraud issues related to NFTs:
1. Fake NFTs and Plagiarism:
Counterfeit NFTs: Scammers often create andsell fake NFTs that appear to be genuine. They might copy the digital files ofan existing, valuable NFT and mint a new token, claiming it's the original.
Plagiarism: Some creators steal the work ofother artists, mint them as NFTs, and sell them as their own. This not onlydefrauds buyers but also infringes on the original creator's intellectualproperty rights.
2. Rug Pulls in NFT Projects:
Developers of NFT projects sometimesconduct what's known as a "rug pull." They might promote a projectheavily, driving up the price of the associated NFTs, only to abandon theproject and disappear with the funds they collected, leaving investors withworthless assets.
3. Phishing Scams:
Scammers use phishing techniques to gainaccess to victims' digital wallets where NFTs are stored. They might sendemails or messages that appear to be from legitimate sources, tricking usersinto revealing their private keys or clicking on malicious links that installsoftware to steal their credentials.
4. Bidding and Auction Scams:
Fake Bids: Some fraudsters place fake bidson NFTs to inflate their perceived value or to trick the seller into believingthere's genuine interest. They might retract these bids last minute,manipulating market prices.
Shill Bidding: Sellers or individualsassociated with them might place fake bids on their NFTs to drive up the priceartificially.
5. Pump and Dump Schemes:
Similar to what's seen in stock markets,groups might artificially inflate the price of certain NFTs by promoting themheavily (the "pump") and then selling them off when their value peaks(the "dump"), leading to a sudden crash in price and losses for otherinvestors.
6. Smart Contract Vulnerabilities:
NFTs are governed by smart contracts on theblockchain. If these contracts are poorly written or contain vulnerabilities,they can be exploited by hackers to steal NFTs or funds.
7. Money Laundering:
The high value and relatively anonymousnature of NFT transactions can attract individuals looking to launder money.They might use illicit funds to purchase NFTs and then sell them, making theorigin of the funds difficult to trace.
8. Market Manipulation:
The NFT market is still unregulated,allowing for various forms of market manipulation. Actors might engage in washtrading, where they sell NFTs back and forth between their own wallets tocreate a false impression of high demand and volume.
Examples of NFT Frauds
1. Frosties NFT Rug Pull: Creators of the Frosties NFT collection abruptly disappeared afterthe initial sale, taking all the raised funds with them. This case gainedattention because the U.S. authorities arrested the individuals involved,charging them with fraud and money laundering. https://www.protocol.com/fintech/frosties-nft-rug-pull
2. Bored Bunny NFT Scheme: Bored Bunny NFT project was involved in a rug pull where thecreators promoted the project with high-profile endorsements and promises ofhigh returns. Investigations later suggested insider trading and connections toother dubious projects. https://www.bitdegree.org/crypto/news/bored-bunny-nft-creators-snatch-21-million-from-slow-rug-pull
3. Evolved Apes Fighting GameScam: Evolved Apes was marketed as an NFT projectthat would also include a fighting game. The anonymous creator known as"Evil Ape" vanished with the project funds shortly after launch,leaving investors and NFT holders with nothing. https://www.vice.com/en/article/y3dyem/investors-spent-millions-on-evolved-apes-nfts-then-they-got-scammed
4. Big Daddy Ape Club: This project promised a collection of ape-themed NFTs on the Solanablockchain but ended up being a rug pull. The creators collected the funds anddisappeared, leaving investors without the promised NFTs. https://coincu.com/60266-big-daddy-ape-club-1-3m-scam/
5. Baller Ape Club Fraud: The Baller Ape Club project resulted in the founder being chargedwith wire fraud and international money laundering. After launching thecollection and selling the NFTs, the website was taken down, and the collectedfunds were laundered. https://nftplazas.com/baller-ape-club-nft-founder/
CONTACT
For more details on NFT in general andfrauds / rug pulling in particular, or indeed any Cyber / Forensic relatedmatters, please contact us here at Aegis per the details below
Peter Coleman: peter@aegisinteraktifasia.com /www.aegisinterkatifasia.com
