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The Dark Side of DeFi Tokens: How You Can Lose Money

DeFi Tokens

DeFi Tokens continue to flood the markets as developers release new coins every day and put them on Uniswap.

DeFi Tokens

What is Uniswap?

Uniswap is a protocol that allows buyers and sellers to exchange ERC-20 tokens without registering on an exchange or order book. It uses an algorithmic equation that automatically determines the exchange rate based on the balances of both tokens and the actual demand for the pair. 

Of course, this is an opportunity for programmers to make money. In this regard, investors need to be extremely careful and selective before investing their money in tokens.

What are the risks to invest in Defi Tokens?

DeFi Tokens

This simplistic use of Uniswap carries some risks. For example, one of the challenges facing the industry is the so-called carpet pulling.

This scam starts with issuing new tokens, creating Telegram groups to create hype, followed by a listing on Uniswap and a liquidity injection.

At this point, the attacker who provided the liquidity will wait for people to exchange their ETH for the newly issued coin. After that, the creators of the token will empty the liquidity pool, leaving the holders with a useless token.

New coins arrive at Uniswap every day. Retail investors with no prior experience in the field are happy to spend their ETH on coins that show 10x growth in 24 hours. Information about the success of a particular token is replicated in Telegram groups or paid Twitter accounts.

In the cryptocurrency segment, Twitter is constantly writing about new coins, for example, TRUAMPL (TMPL):

And this is far from the only example, such things are done regularly. So before you exchange your ETH or other assets for a new product on Uniswap, be sure to check if the liquidity is blocked.

How to avoid cheating?

The most common tool that reputable teams use to lock down their liquidity and gain additional trust and user confidence are Unicrypt.

It is also very easy to check if liquidity is locked for a particular pair and when it was done. All this can be done on the Unicrypt website: just go to the Uniswap website, select the desired pair, then it will be easy to check how much of the liquidity is blocked and until what date.

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Disclaimer: Bitxmi News is a news portal and does not provide any financial advice. Bitxmi's role is to inform the cryptocurrency and blockchain community about what's going on in this space. Please do your own due diligence before making any investment. Bitxmi News won't be responsible for any loss of funds.

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