Racoon Rugged Society?

An NFT project goes rogue, reminding us to research how our NFTs actually work!

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Dear Bankless,

In crypto, a project’s team “rug pulls” when they abruptly disappear with everyone’s money after building up some initial community traction. 

The NFT ecosystem has seen a few rugs from smaller teams so far, but we saw something a little different this week via the developers of a little-known profile picture project, Racoon Secret Society

These devs didn’t sail into the distance — they used their privileged access to the project’s smart contract to change the metadata of everyone’s Racoon NFTs. These tokens should look something like this:

Instead, now all collectors are holding this same pile of digital bones:

The project’s builders are maintaining this episode wasn’t a rug pull but rather a freewheeling experiment with other peoples’ money and a lesson to the “sick” NFT community. Call it what you want, but it’s clear they duped more than a few small-time NFT collectors. 

The silver lining here? The bizarre incident serves as a timely reminder to be very mindful of how exactly a given NFT works before minting/buying!

-WMP


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How’d this happen?

Some NFT projects, like generative art platform Art Blocks, generate NFTs permanently at the time of mint and store the associated metadata on-chain, i.e. forever retrievable on the Ethereum blockchain.  

These kinds of on-chain projects fetch a premium in the NFT ecosystem in part precisely because they’re on-chain. That’s because their design offers users superior accessibility and durability guarantees for the long term. 

Yet it’s also the case that a blockchain like Ethereum is not optimized for storage. For the purposes of flexibility and affordability, many NFT projects point their NFTs (either temporarily to start or even beyond that) to metadata hosted on external databases like AWS. 

This model poses various risks, and one of them is that a project’s team doesn’t remove their ability to adjust where their NFTs point to and then takes advantage of that power. The Racoon Secret Society devs just showed us exactly what this kind of behavior can look like! 

Racoon rekt

Head over to Twitter account of the Racoon Secret Society and you can find (at least for now) tweets and a Medium post offering the following rationales for the project’s surprise metadata shift. Sounds like improvisational nonsense to me, but you be the judge:

How to stay safe

Understanding how an NFT project stores (and, if possible, can interact with) its media and metadata is arguably the most important step when it comes to evaluating an NFT. 

This takes research. And it takes getting some technical competency so you can know what to look for. But the basics are simple: the further along the on-chain spectrum and decentralization spectrum a project is, the more guarantees its token holders will enjoy. 

Zooming out, a helpful resource to consider here is Check My NFT, a search tool for easily checking how your NFTs are stored. For example plug the Racoon Secret Society contract address into Check My NFT with a valid TokenID and you’ll get the following error message …


Action steps


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Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.


Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.