How Influencer led “Rug Pulls” Damaged Cryptocurrency’s Reputation in Popular Culture

Cryptocurrency has no doubt attracted a younger and more diverse generation than traditional trading ever has. However, with that youth comes inexperience and naivete, making this new wave of investors especially susceptible to scams in the cryptocurrency and NFT space.

More often than not, these scams involve influencers with large audiences on social media like YouTube and Tiktok. But before we learn of the most malicious examples of these kinds of scams, it’s important to recognize the form they often take.

What is a “Rug Pull”?

In the world of crypto, a “rug pull” consists of developers building up a project and attracting investors before any of the promises are legitimately fulfilled. Influencers play a key part here, as often they are paid by developers to use their significant followings to build up traffic towards these seemingly grand projects. Once there are enough people bought in, developers will vanish, utilizing the lack of regulation and anonymity of crypto to dodge any consequences. 

Even though blockchain data is publicly available, this does not mean governments will investigate these instances, or especially go as far as to trace back to the developers (which would likely be considered criminals in any other industry with more regulation). 

The form of a “rug pull” predates crypto by centuries; it’s a people phenomenon, not just a crypto one. Recall the Fyre Festival in 2017, in which attendees who paid hundreds of thousands of dollars for gourmet meals and luxury accommodations were met by cheese sandwiches and tents repurposed from FEMA. The event had been hyped on the Instagrams of notable celebrities such as Kendall Jenner and Bella Hadid (who until later did not disclose they had been paid thousands for the endorsements). 

Dink Doink 

Brought to fame in June 2021 by internet personality Logan Paul, $DINK, promising NFT’s and exclusive cartoon episodes to those who bought in, has plummeted to virtually nothing. The project is now utterly dead, going from a trading volume of over $1 million USD last summer to less than $10 last week.

Paul and co-host of his podcast “Impaulsive” Mike Majlak have sense apologized for their Twitter and verbal promotion of the worthless project but remain shrouded in scandal within the cryptocurrency community. 

Save The Kids

Touted by members of the ultra-famous Esports team FaZe Clan (and other influencers including Sommer Ray and Ricegum), $KIDS was promised as a Bep-20 token that would focus on donating proceeds to the Binance Charity Wallet. Many of the influencers had allegedly sold in a coordinated effort after promoting the coin, driving the price down from $0.0029 to $0.0012 in just 2 weeks. 

FaZe Jarvis and FaZe Kay were soon cut by the Esports organization, but as of yet there have been no successful legal action taken towards them and other influencers responsible for the scandal. CoffeeZilla, a popular YouTuber who led the most popular criticism towards the project explained the ‘anit-whale’ code that was promised to limit the selling of the coin to 0.1% of the total supply per day had been changed through the backend upon launch editing the one day period to become one minute. This allowed influencers and developers to effectively dump their entire supply within a few minutes.

DistX

Ben Armstrong of “BitBoy Crypto” (one of the most watched crypto channels on YouTube with 1.4 million followers) admitted he has on multiple occasions taken endorsements from crypto projects in exchange for exposure on his channel. 

However, when Armstrong announced his cooperation with DistX, a coin that (ironically) was intended to prevent scams in the crypto space, the situation went awry. Suddenly, the project leaders exited, having liquidated their supply, leaving investors with a currency that has since dropped in 99% in value. While Armstrong claims he too was a victim of what he admits ended up being a “scam”, there is some controversy around whether he was part of the group that planned to jumped ship.

Effects on Crypto as a Whole

“Rug Pulls” like the ones listed here have become a part of the larger anti-crypto narrative that highlights the volatility and risk of crypto compared to traditional stocks and securities. Many suggest scandals such as these are a sign that national governments need to hotly pursue investor protection laws to prevent fraud in the space. 

However, many suggest that the billions lost in scams such as these are nothing more than proof that individuals are not investing intelligently and push the blame to those falling for the scams. It must be considered though, that many of these buyers are likely extremely young, and enter the space simply due to FOMO and a desire to “get quick rich”.

What Can You Do to Avoid Scams like These?

It may seem obvious, but many investors are simply uninformed on how to avoid crypto projects that quickly fizzle out. After all, for every article detailing how to invest safely, there are hours of videos out there promoting thousands of individual projects (and statistically most of these will fail). Ask yourself, what is motivating your favorite influencer to suddenly get involved in crypto? Remain especially wary of projects that do not accept payment in USD, are led by anonymous teams, or do not have a clear goal/set of ideals that you believe will make the project successful overall.

If you want to make quick money by picking a random project that “sounds good” and dumping a serious percentage of your portfolio into it, you may be better suited heading to the roulette table and picking a few numbers to bet on. Always keep caution when you find yourself buying into an influencer’s claim, so that future “rug-pulls” aren’t allowed to further taint the popular perception of crypto as a deceitful community rampant with scandal.