Rug-pull, verb: “to pull the rug out from under someone,” dramatically upsetting the status quo.
Rugpull, noun (crypto): A crypto-based fraud scheme where project founders convince users to invest their money in a crypto or NFT project which they then abandon, likely absconding with all the invested funds.
On Monday, many users of CNN’s “Vault” NFT store were dropping the dreaded “r-word” as the company announced it was shuttering its non-fungible token store after nearly a year of activity. Though the company has told users on its Discord it plans to compensate them some of the funds for “thousands” of users with even more cryptocurrency, now here comes the question, did a major news network just commit a rugpull?
In a Monday Twitter post, CNN detailed how how “Vault was originally launched as a 6-week experiment, but the support and engagement from our community let us expand this project into something much larger… we learned a lot from our first foray into Web3, and we are excited to carry Vault’s concepts around community storytelling into future projects.” Of course, the network did not offer any specific reason why they were shutting down its store. NFT may indeed be a dirty word at this point. Recent data shows that NFT trading volume has dropped 97% from its height last year.
When it was originally created, CNN did not mention a date of obsolescence, so the message about it lasting much longer than expected reads as especially hollow. The original press release for Vault mentioned the initial launch including six weekly NFT drops, but the release built up hype for future drops to include “an even wider range of digital collectible topics and formats.” Well, at least their NFT platform did last much, much longer than the company’s ill-fated attempt at a streaming service with CNN+, which lasted barely three weeks. Vault, which was released in June, 2021, allowed users to grab a copy of “defining moments” minted on the Flow blockchain whether it was presidential elections or major space rocket launches.
Some users were worried they might lose access to their NFTs, though the company tried to calm users’ fears. Jason, who’s listed as a CNN employee, told Discord users Vault’s NFTs are stored on IPFS, a peer-to-peer filing storing system. They are not planning any more drops, and Jason mentioned compensation would be either FLOW tokens or stablecoins deposited into each collector’s wallet. Here’s the kicker, that “distribution” would only be about 20% of the original mint price for each Vault NFT in a user’s wallet.
Gizmodo reached out to CNN with questions regarding many of the users’ main complaints, as well as queries about how much CNN has made from its NFT auctions. We did not immediately hear back, though we will update the story if we receive any additional comment. Decrypt estimated that CNN likely made hundreds of thousands in profit from its initial sold-out NFT auctions.
Even though the actual marketplace would remain active, users were quick to mention the value of these NFTs would quickly plummet without an active community and little actual utility. Other users mentioned there were obvious holes in CNN’s plan to abandon the project. As pointed out by The Verge, Flow blockchain limits stablecoin withdrawals to $10 per transaction and with a $4 gas fee. Depending on what kinds of NFT a user has in their wallet, withdrawing that stablecoin might not even cover the price for users trying to take that crypto out of their wallet.
Though Vault users weren’t exactly thrilled with the news that their tokens would suddenly lose most of their value without direct support from the company. Others asked why CNN thought 20% compensation was fair if users wouldn’t likely break even on their investment for many years. Some Vault users were anticipating the Art of Voting NFT series set to drop for the midterms Nov. 8, but that will no longer be happening. Users mentioned that the company had been promising new features and drops as recently as last month.
Knowing that CNN likely made much more profit than they are shelling out to current users, this may be the closest a major company can get to what people traditionally think of as a rugpull. There are still new NFT projects coming out the door, but in many cases these companies would rather eschew the moniker of non-fungible token. Starbucks is launching its “digital collectible stamps” while Reddit is launching a series of blockchain-based “Collectible Avatars.”