CNN accused of rug pull as it abandons its NFT project

CNN accused of rug pull as it abandons its NFT project

Illustration by Alex Castro / The Verge

On Monday afternoon, as pointed out by Parker Molloy, CNN ended its big Web3 project by announcing, “we have decided that it’s time to say goodbye to the Vault by CNN.”

You may have already forgotten about it, but Vault by CNN launched in the summer of 2021 as a marketplace for its own NFTs (non-fungible tokens) that would “offer collectors the opportunity to own a piece of history.” Sort of like NBA Top Shot except for media nerds instead of basketball nerds, it minted CNN reports of key events or artistic interpretations inspired by them, creating digital collectibles that owners could show off somehow or trade with others, like baseball cards. This idea apparently seemed more reasonable while cryptocurrency prices were sky-high, and headlines about NFTs didn’t include phrases like “trading volumes collapse 97 percent since January peak.”

Things have obviously changed as the “crypto winter” settled in, although an April report by the Press Gazette said CNN had pulled in more than $300,000 from the sales.

Vault by CNN lasted 16 times as long as CNN Plus

News of our own to share pic.twitter.com/qcxaDXNRYO

— Vault by CNN (@vaultbycnn) October 10, 2022

In a Discord channel for the service, another message informed owners that while the Vault website will “undergo changes,” it will remain available for them to view their collections and use its marketplace. Reactions from the community included shock, disappointment, and a few posters saying they planned to contact their lawyers while accusing CNN of a “rug pull,” which in crypto terms applies when a development team unexpectedly yanks support — and funds — from a project, leaving the people who bought in with nothing.

In the Discord, CNN said it plans to compensate “the thousands of collectors who joined us in this experiment” with distributions based on the purchase price of each wallet’s NFTs as captured on October 6th. In a separate message from CNN, staffer “Jason” said, “The distribution will be either FLOW tokens or stablecoins deposited into each collector’s wallet. We are currently working out the details, but expect the distribution amount to be roughly 20% of the original mint price for each Vault NFT owned.” He also noted that the actual media for the NFTs is stored in IPFS, a distributed file system that should mean they’ll continue to be available even if CNN’s website goes away.

So far, that doesn’t appear to be enough to put collectors at ease after they expected that tokens published by an established brand like CNN would experience more support than many shadier NFT projects. As one message in the channel put it, “you can’t simply say goodbye but your NFTs are still ok and now more rare... without a community (discord at least) and no utility... it’s not an NFT anymore but a mere digital copy...”

Image: Discord

Discord messages from Vault by CNN collectors expressing disappointment with its sudden shutdown.

Another member pointed out one hitch resulting from the Vault relying on the Flow blockchain, the same Dapper Labs-made system that underpins NBA Top Shot and NFL All Day. Flow’s support documents mention that it allows withdrawals in the USDC stablecoin that’s pegged to the value of the US dollar at a minimum of $10 per transaction with a $4 processing fee. The cheapest NFTs on CNN’s marketplace are listed for $19 — if someone owns one of those, their rebate would be around $4, or even less, leaving them with no return if they could withdraw it.

I spoke to one individual who shared their wallet address and estimated they’d purchased as much as $11,000 worth of CNN tokens from its marketplace. Without ongoing support and after a 20 percent rebate, they have little reason to believe the collection’s value will remain close to that level.

Additionally, as recently as last month, CNN was still pushing community members to buy more tokens so they could have enough to access events like an upcoming Art of Voting NFT Series scheduled to drop on midterm election day, November 8th. Collectors would need to own at least one NFT from a particular set to get a key to access the Art of Voting set and other unspecified “exclusive benefits.” Documentation for Vault by CNN included a section describing the fabled “utility,” listing Exclusive CNN Perks and Exclusive CNN Vault Merch as “coming soon.” A roadmap of promised features even indicated that later this year, people would be able to mint any CNN article as an NFT if they wanted to for some reason.

An Associated Press NFT marketplace that launched in January shows little activity and a broken Discord link.

There was no specific reason given for the shutdown, but the Wall Street Journal wrote “NFT Sales Are Flatlining” on May 3rd of this year, and things haven’t improved since. On the other hand, Vault by CNN did manage to last about 16 times as long as the CNN Plus streaming effort that launched in March and died exactly one month later.

According to the Vault marketplace website — which does not include a note about the shutdown — the most recent transaction prior to the announcement occurred five days ago, on October 5th, when someone bought a “CNN Defining Moments” token commemorating Nelson Mandela’s release from prison for $77.

The Discord message also informed holders of CNN’s plan to “burn” unsold NFTs, which it says will make the ones they hold rarer, and thanked collectors for joining the “experiment.” Until today’s message about the Vault’s shutdown, we could not find any reference to the project as an “experiment” within CNN’s extensive tweets, Discord broadcasts, and press materials. In an email, CNN publicist Garrett Cowan tells The Verge that the six-week experiment mentioned in the message was an internal test leading up to the June 2021 public launch.

Image: CNN

Vault by CNN logo

CNN is just one of many notable brands and personalities who launched NFTs during their so-called “bull run” over the last couple of years but failed to pay off community expectations.

Athletes are a visible example, with NBA star De’Aaron Fox accused of a rug pull after his Swipathefox project collected $1.5 million and shut down without delivering the promised benefits, or the Player’s Only NFT effort promoted by athletes like Michael Carter-Williams and Jerami Grant, which pulled in $1.4 million but struggled to deliver promised rewards.

League efforts aren’t doing much better: prices and activity on NBA Top Shot have fallen sharply from their peaks, it’s unclear how NFL All Day is doing because I’ve never seen anyone talk about it, and while the NHL announced plans to launch an NFT marketplace in July, it hasn’t actually done it or shared any details on the project ever since. Just a few days ago, Lucky Trader reported that the UFC Strike NFT marketplace that also runs on Flow paused pack drops and credited recent buyers with partial refunds after a user apparently exploited several recent drops to obtain rare items.

Elsewhere in media, the Associated Press courted controversy by launching an NFT marketplace just as prices peaked in January with the stated intention of using proceeds to fund journalistic efforts. Now, the AP NFT marketplace shows little to no activity on many recent drops, and a link on the page pointing to the project’s Discord doesn’t work.