The Mission to Save Uniswap From Rug-pulls Has Begun

Despite the great opportunities that Uniswap is providing for smaller blockchain projects by getting them access to much-needed liquidity, there is still one big problem that is plaguing the platform. Rug-pulls. A rug-pull is the name given to a scam where someone will host a project on a liquidity platform and once they have gained investment that they deem to be adequate, they will then cash-in their own liquidity and tank the value of the project, losing investors a lot of money.

Many people have noticed these issues and as a result of this, the mission to save Uniswap from the plague of rug-pulls has begun.

HatchDAO

A real and recent example of this type of scam can be found in the HatchDAO Incident that occurred on TrustSwap. This incident occurred when a developer behind Hatch created two million new tokens within the ecosystem and then sold them within a week of using TrustSwap’s services. For reference, the token was once valued at $5.80 per token on September 19th, 2020 and then when the scam occurred on the 26th of September, the token was virtually worthless.

TrustSwap gained a lot of flak for this incident as they had assured customers that the HatchDao offering was safe, and then, later on, failed to accept responsibility for the scam, claiming their systems worked “exactly as they should”.

It would be ideal if the HatchDAO incident was simply an isolated case, however, this is not true. In the same month, on the 10th of September 2020, Yfdexf.Finance, a liquidity mining pool defrauded investors of $20 Million of locked liquidity. This simply cannot be allowed to continue.

One proposed fix to the problem has been to introduce tougher legislation in the sector, which has been supported by Kristi Swartz of Swartz, Binnersley & Associates, however, introducing regulation can take a long time and a solution is needed now. Investors need to look to other businesses for the solution.

The Solution

Presale Locked Liquidity

As can be seen in the last section, there is an epidemic of rug-pull scams appearing on every liquidity platform and something needs to be done to stop investors from being conned out of their money, thankfully a solution is on the horizon in the form of LID Protocol. LID Protocol utilizes its platform to lock the liquidity of a token that goes through pre-launch with them. This means that the owner of the project cannot pull their liquidity in a way that will con investors out of their money.

The system works by depositing the liquidity allocation into the Uniswap liquidity trustlessly when certain targets are hit with regards to fundraising, where the tokens are then automatically burned. This means that the liquidity is permanently locked. Furthermore, any token allocation that is above 5% has to be placed into a time-release smart contract; for example, staking rewards, DAO allocations, and Team token allocations.

There is a benefit to projects from this as well, as they are more likely to get investment if the investors know they are legitimate.

LIFTOFF

LID Protocol has also gone further in its combat of rug-pull scams with their new product, LIFTOFF, which is going to be an automated approach to fixing the problem that will also help smaller startup projects to gain the much-needed investment to make their idea a reality.

Firstly, LIFTOFF will automatically and permanently lock the liquidity of a token, which completely eliminates the possibility of a rug-pull scam occurring. This will be facilitated through the use of time-locking and permanently locking smart contracts. To further assist with keeping investors safe token audits will be required in the event that they are not using ERC20 contracts. This product itself will cater to startups raising up to 500 ETH as a hard cap.

This product represents a grand step forward in making sure that rug pull scams

Conclusion

Rug-pull scams are threatening to destroy the trust of investors in liquidity platforms like Uniswap, that are doing great work by allowing small projects to gain the investment that they need to make their ideas a reality. Seemingly the common-sense answer would be to regulate activities relating to their services, however, this presents its own set of problems and a solution may not come along for a long time.

The answer to the problem of rug-pull scams has been found in technology, which can protect investors and small projects without damaging the ecosystem with restrictive legislation that could genuinely do more harm than good in the long-term.