The blockchain network has become so large over the years that a new cryptocurrency is created every minute. The technology that has so much to offer has also attracted con artists who have found multiple methods of scamming users on the network – rug pulls being one of the most popular methods.
This scam is orchestrated when a project owner drains the funds of the liquidity pool of his token created on a decentralized exchange like UniSwap or PancakeSwap (where investors can buy and sell the token instantly). Essentially, the scammers create a high value liquidity pool and engage aggressively to attract more and more investors. The rug pull happens the moment that the scammer uses his liquidity provider tokens to instantly remove all the liquidity of the pool and disappears with it. The solution that investors are now actively demanding that projects use in order for them to feel safe investing in them? Liquidity locking.
Liquidity lockers benefit both investors and developers. It protects investors from “rug pulls” that leave them tottering up massive losses. Locking boosts the token’s legitimacy and investor confidence. Even when a project owner has no malicious intent and the project asserts sufficient legitimacy on its own, liquidity lockers help prevent the LP from being hacked and guard from human error as well. It is important to note that storing LP in a multi signature wallet or in a self made locker is not an adequate alternative.
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