Vault of CNN shutdown results in “rug pull” accusations from NFT buyers

Monday afternoon, as pointed out by Parker MolloyCNN ended its big Web3 project with announcement“We’ve decided it’s time to say goodbye to the vault of CNN.”

You may have already forgotten, but Vault by CNN launched in the summer of 2021 as a marketplace for its own NFTs (non-fungible tokens) that would “give collectors the opportunity to own a piece of history.” Kind of like NBA Top Shot except with media geeks instead of basketball geeks, it featured CNN reports on important events or artistic interpretations inspired by them, creating digital collectibles that owners could display in some way or trade with others, like baseball cards. This idea apparently made more sense while cryptocurrency prices were soaring, and headlines about NFTs didn’t include phrases like “trading volume collapses 97 percent since January peak.”

Things have obviously changed as the “crypto winter” settled in, though a report from April Press Gazette said CNN had raised more than $300,000 from the sale.

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 the marketplace. Reactions from the community included shock, disappointment, and a few posters who said they planned to contact their lawyers while accusing CNN of a “rug pull,” which in crypto terms refers to when a development team unexpectedly pulls support — and funds — from a project, leaving those who bought in with nothing.

In Discord, CNN said it plans to compensate “thousands of collectors who joined us in this experiment” with distributions based on the purchase price of each wallet’s NFTs captured on October 6. 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 on the details, but expect the distribution amount to be approximately 20% of the initial coin 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 will continue to be available even if CNN’s website goes down.

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

Another member pointed out a catch resulting from Vault’s reliance 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 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 these, their discount would be around $4, or even less, giving them no return if they could withdraw it.

I spoke with one person who shared their wallet address and estimated that they had purchased as much as $11,000 CNN tokens from the marketplace. Without ongoing support and after a 20 percent discount, they have little reason to believe that the collection’s value will stay 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 8. Collectors must own at least one NFT from a particular set to obtain a key to access the Art of Voting set and other unspecified “exclusive benefits”. Documentation for Vault by CNN included a section detailing the rumored “tool,” 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 stamp any CNN article as an NFT if they wanted to for some reason.

There was no specific reason for the closure, however 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 managed to last about 16 times as long as streaming effort CNN Plus which launched in March and died exactly a month later.

According to the Vault Marketplace website — which does not include a note about the shutdown — the last transaction before the announcement occurred five days ago, on Oct. 5, 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 announcement of Vault’s closure, we could find no reference to the project as an “experiment” in 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 public launch in June 2021.

CNN is just one of many notable brands and personalities that launched NFTs during their so-called “bull run” over the past couple of years, but failed to pay off society’s expectations.

Athletes are a visible example, with NBA star De’Aaron Fox accused of a blanket pull after his Swipathefox project raised $1.5 million and shut down without delivering the promised benefits, or the player-only NFT effort promoted by athletes who Michael Carter-Williams and Jerami Grant, who 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 dropped 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 so or shared any details about the project since then. Just a few days ago, Lucky trader reported that the UFC Strike NFT marketplace, which also runs on Flow, paused pack drops and credited recent buyers with partial refunds after a user apparently took advantage of several recent drops to obtain rare items.

Elsewhere in the media are Associated Press courted controversy by launching an NFT marketplace just as prices peaked in January with the stated intention of using the proceeds to fund journalistic efforts. Now, the one AP The NFT marketplace shows little to no activity on many recent dips, and a link on the page pointing to the project’s Discord doesn’t work for my account as well as a few others, but according to AP web3 manager Dwayne Desaulniers, it’s still active. In another email The Vergehe said that AP will continue to mint NFTs, without answering questions about the current level of activity or the number of users.

Update October 11, 3:37 PM ET: Updated to note that the Discord link for the AP NFT project is reportedly active.