No matter how long you have been in the NFT space, it is likely that at some point, you have been rugged. Rugs are everywhere, and it is hard to avoid them all; even the most experienced investors can still fall victim (recent example, Reptilian Renegades). There are different types of rugs: fast and slow. Fast rugs are ones that are premeditated, intentional, and usually happen right after mint. Your heart sinks when you realize the Twitter and Discord are deleted, and the devs run off with the precious Solana. Slow rugs are a little different; they usually start as well-intentioned projects, but for one reason or another, they don’t survive or deliver on the promises that their community held on for. However, I would argue that not all failed projects qualify as rugs. This article examines the gray area in rugs, and what the speed at which we collectively classify something as a rug says about the broader community.
It is interesting to ponder who is at fault for a rug. There is currently not a standardized way to catch ruggers. Some can be traced via wallet tracking and blockchain data, but even so, it is hard to press charges based on their home country’s laws and that many countries don’t have relevant laws for crypto yet. In the space, “DYOR” and “NFA” are thrown around constantly, implying that the responsibility falls solely on the investor himself/herself. Are investors of rugged projects victims of the rugger? Yes. The trickier question is whose fault that is. In the early stages of crypto, a place where decentralization and freedom are widely valued and experienced, a natural consequence is the existence of scammers and ruggers. Is there a way to fix this problem without adding in some layer of regulation, and therefore centralization?
Slow rugs add in another layer of complication. Investing in NFTs is similar to startup investing; however, one main difference exists: in the business world, it is known and accepted that many (most) startups fail early on for various reasons. These reasons may or may not relate to CEO competence. A lazy CEO will likely cause a startup to fail, but also will macro market conditions outside of the CEO’s control. NFT projects can fail for the same reasons, but no matter the reasoning for the failure of the project, the community is quick to jump to call it a “rug.” This implies that the community is being victimized by the team, which may or may not be true. It appears the difference in classical startup investing and NFT investing is the expectation of the communities: classical startup investors seem to be able to better understand the risks to their investments and manage their risks and expectations because of it.
What does this say about the NFT community? First of all, it is unarguable that the NFT space is a lot younger and more immature than classical startup investing. Anyone and everyone can invest in NFTs given the proper information, and that information is a lot more accessible and fun to consume than learning about startup investing. Though not backed up by any formal evidence in this article, it is likely just from observation that the average NFT investor is much younger than the average startup investor. This could add in another layer of immaturity.
NFTs, and crypto in general, is often presented as a way that one can make huge capital gains very quickly. Though this is true for some, the reality is that it takes a large element of luck and coincidental timing to make massive gains in a short amount of time. The much more common experience is that investors experience some gains and some losses that transition into stronger gains as they learn more about the space and market dynamics. The advertisement of crypto as a “get rich quick” route likely leads to some entitlement in the community; they become expectant of immediate massive gains even though this is not the norm. This may naturally change as the space grows and matures. As mass adoption occurs and more big players are involved, we may see a decrease in the volatility of the market in general: this would manage expectations by getting rid of the possibility of “get rich quick.” However, in the meantime, it is great to challenge oneself and one’s network to not shift blame for uninformed decisions on someone else unless it is clearly justified. Blaming someone else is in fact counterproductive; it creates the false narrative that the misfortune is completely out of one’s control. In this booming ecosystem, ownership and accountability will translate to knowledge and success.