NFT Project Promising Layers of Utility Ends in NFT Rug Pull - Klein Moynihan Turco LLP

NFT Project Promising Layers of Utility Ends in NFT Rug Pull

For those familiar with cryptocurrency and Non-Fungible Tokens (“NFTs”), the term “rug pull” has become all too familiar. An NFT rug pull is a malicious scheme in which NFT developers raise funds for their project, and then disappear with the proceeds. These schemes typically involve elaborate group-think marketing and a utility roadmap. Frosties is one rug pull that quickly gained notoriety, as authorities were able to locate and hold the alleged perpetrators accountable. In the case of many other NFTs, such as Blockverse, however, the project’s investors still seek justice. 

The Blockverse NFT Sale

On January 24, 2022, a limited release of 10,000 Blockverse NFTs sold out within an astonishing 8 minutes. Each NFT sold for 0.05ETH (approximately $127 at the time), resulting in about $1.3 million in gross profit. It is alleged that within 24 hours, the project’s creators deleted their website, Discord server and game server, and disappeared with the $1.3 million. It quickly became apparent that bona fide purchasers of Blockverse NFTs may have fallen victim to another NFT rug pull.

The Promised Blockverse NFT Utility

Almost every new NFT release is accompanied by a utility roadmap. This roadmap essentially guarantees NFT owners added value on top of owning a one-of-a-kind digital object itself. The Blockverse release was highly anticipated because its roadmap guaranteed integration into the Minecraft game universe. Minecraft needs no introduction – screenshots from its pixelated gameplay permeate every aspect of popular media today. The Blockverse roadmap promised a player vs. player server within Minecraft. NFT owners were also promised to earn a currency known as $DIAMONDS as they logged time on the server. Fast forward half a year, and those lofty promises have yet to be met. In fact, the developers are nowhere to be found. As such, most Blockverse owners have accepted by now that they are the victims of a classic NFT rug pull.

The Aftermath of an NFT Rug Pull

The worst part about an NFT rug pull is not the disillusionment or complete lack of communication with the perpetrators. The worst part is that there is no way for victims to get out with their money. Where Blockverse NFTs sold for 0.05ETH at release, they now sell for an average price of 0.001ETH (approximately $1.75) on the secondary market. Selling a former dream for a bag of chips (before fees) will only serve to rub salt in the wound. Blockverse owners have no choice now but to “hold the bag” and wait for a rebound in value that they know will likely never materialize.

Why is the Blockverse Story Relevant to Your Business?

In hopes of deterring future NFT rug pulls, and other cryptocurrency scams, the FBI recently created a “virtual asset exploitation” unit. This unit has been hard at work. Very recently, in fact, it charged a former NFT secondary market executive in the first-ever NFT insider trading case.

Despite many documented rug pulls, NFT popularity continues to rise unabated. For every cautionary tale, there are countless others that offer entertaining artwork or groundbreaking utility. It is impossible to speculate whether NFT rug pulls began with malicious intent or were just the result of terrible planning and management. What we can be sure of, is that NFT projects are scrutinized now more than ever. Government oversight is only going to increase. Given the foregoing, if you plan to develop an NFT project of your own, help ensure that it becomes a story of success. From the outset, obtain guidance from attorneys experienced with NFT promotional advertising. If you require assistance with an NFT collection launch, or otherwise seek to avoid NFT rug pull allegations, please email us at info@kleinmoynihan.com or call us at (212) 246-0900.

The material contained herein is provided for information purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney. Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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Photo by Shubham Dhage on Unsplash

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