ERC721-R: Introducing the Anti-Rug Contract Standard
We have received extremely positive community feedback regarding our new proposed contract standard, and we appreciate every single comment.
The purpose behind the Anti-Rug Contract Standard is to introduce basic consumer protections into our beloved space. The unfortunate reality is that NFTs are rife with scams, rug pulls, cash grabs and the like. Every mature financial space has basic investor protections, and we believe this is critical for NFT’s to enter the mainstream.
Important to note: We don’t believe our solution is perfect, but we strongly believe that this standard is a stepwise improvement to the status quo. We have succeeded in our mission to open a dialogue around investor protection, and invite every developer in the space to suggest changes to our contract standard. That said, let’s dive into the contract standard in more detail.
The Anti-Rug Contract Standard:
In all mainstream financial markets, founders are held responsible to act in its investors’ best interest. This is a concept referred to as “fiduciary duty,” and is not a concept that exists in the NFT space as of yet. Since we don’t have a regulatory body (ex the SEC) cracking down on misuse of investor funds, and since blockchain technology should be trustless, we aim to leverage smart contracts to mitigate the risk of rug pulls, and to better align the incentives of investors with project founder.
How it works:
The contract contains configurable parameters that can be adjusted based on a project’s needs. For the upcoming Podium mint, this is what our refund schedule will look like:
Weeks 0–2: Any NFT holders can choose to refund their NFT and receive the full mint price they paid immediately. Funds from secondary market royalties can be used by Podium immediately
Weeks 2–4: Podium is now able to access 20% of the mint funds to put towards project development. NFT holders are able to refund 80% of the mint price in exchange for their NFT
Weeks 4–6: Podium unlocks an additional 20% of mint funds, and can put those funds towards project development. NFT holders are able to refund 60% of the mint price in exchange for their NFT
…
Week 10: The refund period is over, and Podium can freely access the remaining 20% of mint funds to use for project development
These parameters are entirely configurable in our contract. This is the schedule that works for Podium, and is not necessarily perfect for other projects. Podium will be the first to use this contract standard, and we hope future projects will improve on our use of the contract.
Addressing the concerns:
While the overwhelming majority of feedback has been positive, certain concerns have been raised that we wish to address.
1 — “If investors invest in a rug, that’s on them. They should’ve done their research and invested in a doxxed team”
You can do all the research in the world and invest in a doxxed team with a flawless track record that has the most detailed roadmap in the space. Still, doxxed teams with stellar track records are not immune from the temptation of being able to do anything with the mint funds without consequence. It’s very easy to fall into the trap of celebrating a mint as the ultimate success, when it should be the start of a journey (similar to a startup raising VC funding.) There have been countless rug pulls by doxxed founders, since there is no governing body holding them responsible to act in their project’s best interest. The Anti-Rug Contract gets us one step closer to accountability.
2 — “If founders can’t use the money immediately, projects will not be able to deliver on promises to investors”
The ERC721-R contract has configurable parameters, allowing funds to “vest” or unlock, over time. Most projects are raising millions of dollars. Having a vesting schedule with a cliff, where x% of the funds unlock every x weeks allows the project founders use some percent of the funds to hit milestones. Hitting these milestones give investors confidence in the team’s ability to deliver. Most rug pulls go to 0. As an investor, the ability to refund 80% of the mint price you paid x time after mint is an improvement from the status quo, where your investment goes to 0.
3 — “If a project immediately dips below mint price, people will refund their mints immediately”
This is true, and by design (feature, not a bug). The space has struggled to find the appropriate pricing mechanism for mints. Dutch auctions take advantage of investors by introducing “fomo”, which typically leads to floor prices dipping well below the auction sell-out price (notable examples include Pixelmon and JRNY club). The market ultimately determines the fair price for a project. With the refund mechanism, if investors instantly refund their minted NFT’s, the mint price was set too high.
We don’t believe our solution is perfect just yet, and once again invite community leaders and developers to provide feedback for the benefit of the space as a whole. The “fair pricing” point deserves a medium article of its own, but is not the primary focus of this contract.
Closing Thoughts
We were recently made aware of 2 projects that have used refunds for their mints, or plan to do so in the near future: Cryptofighters Alliance, and Curious Addys. We are now collaborating with Cryptofighters Alliance, who will be credited as co-authors of the Anti-Rug Contract and look forward to our continued partnership. We have not yet been in contact with Curious Addys, but we see them as trailblazers and thought leaders in the NFT space. We encourage our readers to follow the Twitter accounts for our allies. We are all working towards a common mission of making our space safer and preparing it for mainstream adoption.
Finally, no mint mechanism is perfect. We invite community leaders and developers to join us in introducing improvements that will help propel NFTs into the mainstream. We once again thank you for your support and feedback, and look forward to what the future holds for Podium and the NFT space as a whole.
If you want to learn more, our DMs are open on Twitter: https://twitter.com/NftPodium
The article was written by Lord Quas (advisor on the Podium team), and reviewed by Bilal and Chet
