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The End of NFT Rug Pulls?

The End of NFT Rug Pulls?

On their communication channels, the CryptoFighters team emphasize the fact that they’ve been around for many years now and have proof of their longevity. And people are buying it. But is their early year of release enough to give the project credibility or is this new standard just a marketing stunt? It’s hard to tell. With a clearly visible gap of a couple of years in their activity, one can argue that the team behind CryptoFighters was not involved enough.

ERC is an acronym for Ethereum Requests for Comments. ERCs are proposals made by the community of developers that build applications on top of the Ethereum blockchain. Anyone can make a smart contract, but the ERCs have the purpose of increasing standardization, allowing predictable communication between the ecosystem’s applications.

ERC-721R is a template that contains a mechanism that locks the funds transferred to a smart contract for a fixed number of days, called the “refund period.” During that period, all minters – meaning the primary buyers who purchase NFTs directly from their creators – can get their money back, while the owner of the smart contract can’t withdraw any or most of the funds from the wallet.

In the same tweet as the one mentioned before, Popeye underlined the possibility that some people might “max mint” and initiate a refund “the second they can’t sell their remaining tokens above floor price,” the lowest price for an item from a collection. In theory, this could prove to be incredibly harmful for numerous genuine projects early on, putting a lot more risk on the shoulders of entrepreneurs and artists.

On the other side of this argument, it needs to be mentioned that the smart contract owners can set the refund price lower than the mint price, which could lead to buyers not getting their full investment back anyway. This option would still give collectors a sense of stability and relief because, in the worst case scenario, they don’t lose it all, but it also protects genuine projects from flippers and potentially large unjustified refund rates.

As far as sellers are concerned, the main advantage of using ERC-721R would be the increased credibility, allowing them to build confidence in the market. Also, since the new standard guarantees that the creators take more responsibility, we might see potential buyers leaning towards ERC-721R projects more in the future.

The refund mechanism also creates a new dynamic while still active because the floor price of the collection is unlikely to fall below the minting price. Until the refund period ends, or a large number of the original holders sell their NFTs, no minter will choose to sell the token below mint price if the refund price is equal and guaranteed.

Finally, the redemption period and other features of the NFTs can be chosen independently by the creators. ERC-721R is just a template and, as mentioned earlier, you can follow it as written, or tweak it to your liking.

As a collector you can now get a refund within a given timeframe for the NFTs bought. So, for all buyers, ERC-721R should be the proof of security, offering a better protection against scams. It’s essentially a lifeline for anyone investing in this space.

As @prishalness, a good friend of mine who’s also a developer, has pointed out to me, creators can claim they are using ERC-721R, but the smart contract developer could still implement a secondary withdrawal feature for example, one that bypasses the refund period protection.

The market demands increased accountability on creators’ part and greater security for buyers. It looks like ERC-721R might turn out to benefit both creators, giving them credibility, and investors, giving them better protection. But only time will tell how effective the new standard will be against scammers and if creators will adopt it massively.

This content was originally published here.