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Is that cryptocurrency a scam? Warning signs of a ‘rug pull’

By Kevin Donovan

14:47, 3 November 2021

Evolved Apes NFTs
Evolved Apes NFTs – Photo: The Alternative Asset Club

In the wake of what turned out to be the latest crypto-currency and non-fungible token (NFT) scams – the recent disappearance of the developers of the Squid Game Tokens and NFT game platform – a new analytics firm is warning investors of what to look for to avoid what is commonly called a “rug pull” in the rapidly emerging NFT asset class.

A “rug pull” occurs when developers dump a project and take investors' money by cashing in tokens for real cash.

Squid token project

After jumping from $0.01229 up to $8.94 (£6.54) in under one week, the Squid Token Project – which combined utility tokens, NFTs and online gaming – summarily crashed after the developers shut down the host website and withdrew all the token purchases.

“We have received multiple reports that the website and socials are no longer functional and users are not able to sell this token in Pancakeswap,” noted CoinMarketCap, which had been tracking the token’s price. “There is growing evidence that this project has rugged. Please do your own due diligence and exercise extreme caution.”

Red flag warnings

The Alternative Assets Club, which issues regular reports focussing on emerging, and relatively obscure, alternative assets, is warning new investors in the NFT space what to look for before buying any newly minted NFTs. Their report, titled “NFT Scams: Red flags to watch for,” outlines the steps potential investors should include in the due diligence process.

“The NFT space is saturated with supply, with new projects minting every single day,” writes Stefan von Imhof, co-founder of the Alternative Asset Club. “But while most of these projects are honest, others carry nothing but a litany of (soon-to-be-broken) promises.”

Von Imhoff lists the two highest-profile rug pulls in recent memory: Evolved Ape and Solana Towers while noting, “Just because a project fails does not mean it was a rug pull. The NFT market is volatile, and projects are always at risk of a pullback.”

What to do

The first tip for a potential buyer is to check the project account on the gaming social media site Discord. “You get to interact with other members and follow topics of conversation, von Imhof notes. “Look for substance in the conversations. Try to engage the creators with questions about the technical aspects of the project.”

Warning signs on a project’s Discord include references to the floor price and/or spam and hype for other projects. Upon noticing any of the aforementioned activity on the Discord page, take an “Immediate pass,” warns von Imhof.

Next, one should closely inspect the individual followers on a new project’s Twitter page, noting “many influencers and projects boast about the number of followers they have like it's a rite of passage. But a high percentage of these followers may be fake.”

Von Imhof recommends using a site such as to cross-reference the validity of the individual accounts.

Projects to avoid

Additionally, a new entrant to the NFT space should avoid projects with high purchase maximums, noting the maximum number of NFTs available for purchase at one time should be capped at five.


67,948.30 Price
+0.630% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00


3,743.08 Price
-0.340% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00


0.53 Price
-0.570% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168


10.79 Price
+2.280% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.08964

Aside from the fact that high ownership concentrations within a single project can kill the project outright, it also “increases ‘whale risk,’ whereby even a small number of whales can throw their weight and heavily influence or distort the market.”

Lastly, and perhaps the most difficult and time-consuming task is to inspect the project’s source code on the project's blockchain. “Don’t know how to do this? Ask (or hire) a blockchain developer,” von Imhof says, adding a creator that’s on the level should have no problem providing a video walk through of the code.

From newsletter to investment fund?

What began as an investigative newsletter focussed on new and illiquid assets, the Alternative Asset Club has raised $1.5m in venture capital and plans to launch an investment fund focussed on esoteric asset classes. The fund, expected to launch in the first quarter of 2022 will invest in assets like blue-chip NFTs, sports memorabilia and potentially even music royalties. Australian VC Blackbird Ventures led the seed round of funding.

“Imagine investing in nostalgia,” said von Imhof in an interview with “Look at how ETFs invest in things like companies focussed on the environment. We want to invest in Michael Jordan sneakers or music rights from the 1980s, even western-themed movie scripts.”

The fund will be launched under the US Securities and Exchange Commission’s Regulation D, allowing Alternative Assets to sell unregistered securities to a limited number of qualified investors through private placements. Alternatives Assets Club is planning a re-brand before launching the fund early next year.

Read more: Best NFT projects: 10 names everyonoe should know in 2021

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