Exclusive: Evil Ape Tricks in the Garden of NFTs

Growth in NFTs comes at the cost of exit scams and rug pulls; commentary from NFT marketplace leaders.

In a time when the Federal Reserve and the SEC is investigating Tether to see if there is, in fact, $69 billion tethered to their stablecoin, NFTs have remained an idyllic garden of creativity and expression safely away from the Ponzi schemes and rug pulls that have punctuated the evolution of cryptocurrency as a global phenomenon.

However, a state of innocence rarely lasts forever. The NFT space has a rabid appetite for new projects. They pop up, set up shop with a website, Twitter, and Discord server, and begin hyping with a zeal we haven’t seen since the ICOs of 2017. Also, with a connection to their audience that seems to exceed

The NFT space has created user excitement on a level we haven’t seen in years and makes new opportunities for creators all over the world. But these highly profitable, fast-moving creative ventures are also going to inevitably attract some bad actors.

Evil Apes & Rug Pulls

About a week ago, the anonymous 17-year-old 3D artist behind Iconics ran off with 1,000 Solana worth about $140,000. He had 14 samples of the “quality artwork” 3-D busts he was offering to go along with his planned 8,000 NFTs -- it seems the 3-D busts will never be delivered to the 2,000 buyers of the pre-sale of his NFTs. They received a random collection of emojis instead.

However, that scam perpetrated by presumably one person pales in comparison to the Evolved Apes rug pull which scammed buyers out of $2.7 million.

Apes are a proven commodity in the NFT space of course, bored or otherwise, and the project description on OpenSea was promising and familiar for a generative line of art and collectible NFTs: “The Evolved Apes Universe is a collection of 10,000 unique NFTs trapped inside a lawless land. Fighting for survival, only the strongest ape will prevail.”

Perhaps it was the drive for a wild and lawless darwinist existence that led the lead developer, known only as @EvilApe to suddenly delete his Twitter account and disappear last Friday, along with the project’s website and official Twitter account. Transactions showed that $2.7 million in Ethereum that was intended for marketing and promoting the project and its future tense fighting-game had been embezzled from the project before @EvilApe made his exit.

Though buyers in the project have the NFTs and associated artwork, there will be no game as was promised, and no future development on the defunct project.

Evolved Ape’s audience convened on Discord and selected @Mike_Cryptobull as their Fact-Finder General. He released a PDF report to the jilted buyers which read in part:

“What has happened is that Evil Ape has washed his hands of the project taking away the wallet with all the ETH from minting that was to be used for everything, from paying the artist, paying out cash giveaways, paying for marketing, paying for rarity tools, developing the game and everything else in between.”

@Mike_Cryptobull and other holders of Evolved Apes are adapting to the situation with a new project -- Fight Back Apes. The bereft Evolved Apes holders have convened on Discord to speculate as to commiserate about their losses. On an individual level, the losses are keenly felt: “That was supposed to cover my student loans” one user shared.

The details of the project seem to be evolving, but according to Discord discussions from yesterday, it seems all holders of Evolved Apes are eligible for a Fight Back Apes token -- hopefully associated with the artwork from the original project. The Fight Back Apes project seems to be strictly at the idea stage, though they speculate running the project as a DAO and the main goal seems to be to maintain the value of the NFTs and use of the art to create some justice for those hurt by the Evolved Apes project.

And of course, the Fight Back Apes has a built-in nemesis boss fight for their game, should they develop one.

Are scams part of the new normal for NFTs?

We spoke with leaders of several NFT platforms and marketplaces to get their take on NFT scams, their rise, their relevance, and how buyers can protect themselves.

James Cropcho, Chief Technology Officer and Co-Founder of Flipkick pointed out that rug pulls are a scam specific only to NFT projects that stake part of their value on future developments -- not on the near-term value of the NFT along, but future utility such as participation in a game, as was the case with Evolved Apes.

“A subset of NFT projects, such as Evolved Apes, are traded not so much on the perceived value of the assets but more so on confidence in the project to deliver additional value in the future. This subset of NFT projects stands in stark contrast to, say, CryptoPunks, which are "what you see is what you get." In other words, CryptoPunk-like NFTs are traded on what they are today, not what else they may become tomorrow,” Cropcho said.

Victor Zhang, Founder & CEO at AlchemyNFT said that although scams may be part of human nature, NFT buyers may be more vulnerable to scammers than a typical crypto buyer.

“More technically, scammers will try to get you to sign or put through a blockchain Txs which can grant them access to your other assets or move your assets directly. NFT users are more likely to be cheated because they have less tech and finance backgrounds than DeFi users and there are very few NFT projects that publish their contract auditing report; many don’t even open-source/public their contract code. In DeFi, people trust the code more than the team, in NFT people trust pictures more than the team behind the code,” Zhang said.

Richard Li, CEO at 4K Protocol believes that these types of scams are an inevitable part of the NFT space.

“This wasn’t just predictable—it was inevitable. There are so many people making many quick bucks hyping and flipping NFT art, that it was only a matter of time before someone orchestrated a news-worthy scam,” Li said. “I expect this problem to get worse before it gets better. So long as people continue believing that they can make easy money by flipping art NFTs, the temptation to buy NFTs without doing proper diligence will continue and scoundrels will rejoice.”

Alla Koretsky, CEO at Layer Technologies said that the project was perfectly placed to gain the confidence of buyers by playing off the clout of more successful projects.

“I think when it came to this project it was the perfect storm because you had a community coming off the heels of a very successful Bored Apes project. Since community is everything, there was a lot of inherent trust between all of the members…,” Koretsky said. “This is a large space with a lot of anonymous and pseudonymous actors. The market is developing so building a following doesn’t mean longevity for an NFT project. A younger generation who doesn’t have much to lose and who are great at both social media community building and have time on their hands to study the dynamics of the NFT market are willing to make poor short-term decisions to the detriment of everyone else involved.”

DYOR for NFTs

It stands to reason that bad actors will squeeze money from buyers wherever there is a lack of regulation and anonymity is the norm. So how can buyers protect their interests?

Cropcho suggested that diversification is key for mitigating risk in all forms of investment.

“The best way for traders to protect themselves is to have diverse portfolios which hold assets from a wide range of NFT projects. Even better, this diversification protects not only against projects' ill intents but most other forms of risk, too,” Cropcho said.

According to Zhang, there are some definitive steps you can take to check the veracity of an NFT project.

“….If you don’t have the ability to verify the contract code, then if you don’t trust the team and don’t use their contract. So you should try to avoid non-open-source contracts. Also, try to avoid unaudited smart contracts. Audits not only find bugs but also allow the public to understand the contract,” Zhang said. “In the broader sense, DYOR is a meme for a reason. It’s imperative that each of us do our own research into any investments we make -- and not just in crypto… You should also double-check that the contract address of each NFT matches the official project address. If a project hides that address, consider it suspicious. You should be able to check the blockchain to verify authenticity.”

Koretsky said as always doing your own research is key as is double-checking whatever you are initially told by the seller.

“It is important to cross-reference that the seller has a track record of previous NFT projects. Do not buy into the first project you find -- connect with fellow community members and ask why they’re excited about this particular project,” Koretsky said. “NFT marketplaces like OpenSea can give you some data around the validity of the seller before you buy. Buyers should see if they can find information about the seller's track record and whether this seller has a history of selling on the marketplace.”

Conclusion

At this point, scams like Evolved Apes and Iconics are still outliers in a space that feeds off the buzz of new projects and new activities.

However, all types of players are drawn to the NFT space with the promise of quick money raised on high excitement and higher expectations. A more vigilant buyer will help limit the damage these scams can do, but ultimately some people will get hurt by these rug pulls -- at least until regulation catches up with these projects and provides an easier way to verify project leadership and methodology with more certainty.

NFTs are still a digital gold rush with all the chance for fortune and excitement that applies. But while the bugs are still being worked out and the norms established, caveat emptor NFTs.