DeFi tokens continue to flood the markets as developers are minting new coins and listing them on Uniswap every day.
While this might present an earning opportunity for some, the number of the so-called ‘rug pulls’ is also on the rise. Investors need to be extremely careful and selective when it comes to the tokens they put their money into.
Rug Pulls: The Plague of Uniswap
Uniswap is a protocol that allows buyers and sellers to swap ERC20 tokens without the use of an exchange or order book. It uses an algorithmic equation that determines the swap rate automatically based on the balances of both tokens, as well as the actual demand for this swapping pair.
We’ve also talked about some of the present risks of using Uniswap. Namely, one of the challenges that are plaguing the field is the so-called rug pull.
This is a con that begins with minting new tokens, creating Telegram groups to get the buzz going, followed by a Uniswap listing and injecting liquidity.
At this point, the original malicious liquidity provider would wait for people to swap their ETH for the newly minted coin, after which the token’s creators would drain the liquidity pool, leaving holders with nothing but a worthless coin.
Thousands of ETH Lost Already
New coins are being listed on Uniswap every single day. And, to an extent, that’s to be expected. Unfamiliar retail investors with no previous experience in the field are happy to spend their ETH on coins that are going to pull off a “10x” increase in 24 hours. Or at least that’s what those Telegram groups or paid Twitter accounts are advertising.
Crypto Twitter sees major accounts talking about new coins regularly. A recent example comes from a coin mimicking Ampleforth (AMPL), called TRUAMPL (TMPL).
Someone was shilling “TRUAMPLE” yesterday, and 3 hours later the developers pulled the rug, stealing 1800 ETH.
Be careful guys. Rug pulls are getting more and more frequent.
— Boxmining (@boxmining) August 26, 2020
And that’s far from the only recent example, as rug pulls of the kind take place regularly.
How to Stay Away From Uniswap Rug Pulls?
We can’t stress this enough, but before you swap your ETH or other assets for a so-called “Uniswap gem,” make sure to check whether or not the liquidity is locked.
The most common means that reputable teams use to lock their pooled liquidity and gain additional user confidence and trust is through Unicrypt.
It’s also very easy to verify whether or not liquidity for a particular pair is locked and the date that it is locked to. All of this can be done on the Unicrypt website. Just find the Uniswap browser tap and locate the desired pair to check how much of the liquidity has been locked (if any) and until when.