Millions of dollars have been lost by unfamiliar DeFi investors falling victim to the common ‘rug pull’ practice.
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.
CryptoPotato explained in detailed guides on how the platform works, as well as how to use it.
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. Continue Reading