Let’s be honest, 98% of NFT projects will go to $0. The market is incredibly inflated with many silly derivatives with absolutely no utility going for thousands. Don’t get me wrong, there will be winners, and if you get into those winners now you will make absurd amounts of money just by holding a JPEG, but there is a very good chance when you buy into a project today you are investing in an asset that will lose 99% of it’s value by the end of the year. After studying the space for a long time and investing in many projects that have crapped the bed I have some lessons I want to share. Hopefully some of these key factors that lead to failure will help you avoid the next big rug pull. After reading this article feel free to check out my how-to on finding winning projects.
Unrealistic Roadmap
Every NFT project has a roadmap section. It’s now an expected standard for every site. The biggest problem here is there is no accountability with these roadmaps. Devs can move timelines or flat out not deliver at all with no repercussion. Here are some typical roadmap items that I consider a red flag:
Metaverse: The concept of a “Metaverse” is being thrown around by many NFT projects. A lot of projects are promising their own custom metaverse where your NFT will come to life. Here’s the issue- the metaverse is an incredibly complex technical challenge that the company formerly known as Facebook hasn’t even been able to tackle yet. Microsoft, Amazon, Facebook, and comparatively smaller companies like Sandbox have been trying to build a metaverse for years with no real deliverables released yet. With billions of dollars and thousands of developers from the world’s largest companies unable to deliver a metaverse any time soon, what makes you think derivative 33 of doodles and apes promising their own 3D metaverse by Q3 is realistic? This is pure marketing in order to capitalize on trends. Seeing a metaverse being promised is an major red flag and an instant turn off for me. If they are willing to lie about their roadmap, what else will they be willing to lie about?
Major Unannounced Partnerships: A lot of projects promise upcoming partnerships with major companies and influencers. First of all, if the value of a project comes from partnerships with influencers, there’s a good chance the project has no real value. Second of all, upcoming unannounced major partnerships with big brands means nothing. Every project that goes to 0 makes this promise. It’s a promise that’s very hard to prove wrong so many fraudulent creators will make it. Unless they give specifics or details around these partnerships they should be taken with a grain of salt.
No Utility
The days of new pfp projects going to the moon are over. It would be incredibly difficult for a new art project to recapture the kind of hype and energy Bored Ape Yacht Club created. In order for a project to really take off now it needs utility. Unless a pfp project is being created by a very well known artist like Takashi Murakami I have no interest in investing. You need real utility that will provide true value. This could mean exclusive access to communities, airdrops from blue chip projects, or tokens from a project with high quality tokenomics.
Suspicious Social Engagement
A lot of fraudulent projects will manipulate social media in order to feign highly engaged communities. This can include purchased followers, purchased Discord members, and suspicious community engagement. Newly minted projects from unknown creators with hundreds of thousands of followers is incredibly suspicious. Organically built communities is critical to a project’s success. If I’m investing early into a project I’d actually prefer smaller follower counts. This means developers are not trying to trick potential investors into fomo’ing in.
After examining social media and follower counts I’ll dive into discords. I really try to read through community conversations and see what is important to members. If community members are exclusively talking about the floor price then there’s a good chance people are just looking for a quick flip. This means if you buy in there’s a good chance you’ll be holding the bag. When I’m in a Discord I want the community talking about utility and roadmap. I also want them to have a distinct tone and humor that was organically built. This “tone” will bring keep members engaged and ensure they don’t paper hand out of the project. The more long term holders, the more likely the project will sustain value long term.
These are a few of the big red flags I look out for when researching projects. As the space evolves I’m sure this list will grow. As new red flags appear I’ll make sure to send them to my newsletter subscribers first. It’s completely free and I’ll never send you advertisements. Maintaining this website and newsletter is a passion of mine I do purely for fun. Also feel free to check out my Twitter and engage with me on there.