How To Protect your self from Defi rugs

How To Protect yourself from Defi rugs

Blockchain made it quite easy to some extent to uncover potential rugs, so all you have to do is actually do your own personal research on projects before buying into them. I will list keynotes to check out before buying into any new defi project.

1. Utility or products: Here you need to check the utility that the project is offering. Any project that doesn’t have a use case, a product or a new project, there is no road map or possible use case is a first red flag to point out.

The shibainu you know has nft, a swap dex, and a lot more on its road map. A road map, a clear and comprehensive white paper matters. 2. Liquidity lock and duration: Now liquidity is money in the pool, if the liquidity pool is low, you will have issues selling or buying.

If a coin’s liquidity is locked for some duration, it means the initial money the team inserted into the pool won’t be removed, until the duration is over. if it is removed. That’s when you see tokens move from up to zero. How to know if tokens’ liquidity is locked?

A lot of tools out there to check if liquidity is locked. But I prefer the poocoin explorer. @PoocoinBSC, they have a dex if you insert a contract address of the token you will see if the LP is locked or not. You will also see how many addresses holding the LP.

Liquidity locked should be over 1year, for a serious project and liquidity shouldn’t be majorly on one address. Longevity requires more strict measures right? 3. Token Holders distribution: if one wallet or few wallets are holding some good percentage of the token,

It’s a red flag.

http://Bscscan.com or http://etherscan.io or solscan can show the holders ratio. If a wallet is holding 50% of the token, be sure he can drop the price to the lowest if decide to dump it on everyone.

Like dis the picture below, a wallet is holding 98%. If it’s a burn address, then it’s safe cos no one has access to a burn address right? But if it’s a normal dev wallet, know it’s a red flag.

4. Minting Authority: for most tokens, it’s advised that the mint authority of the token should be revoked, if not dev will keep minting new tokens and dump them on retail investors. Most projects that have rugged used this technique because most people do not pay attention to this

Since most investors are not developers so how would they know if mint authority is revoked?? Mint authority revoke is a command in the smart contract, probably dev should be able to read a contract and inform you whether or not it’s revoked.

Most tokens that don’t have a max supply when you check them on CoinGecko do not have mint authority revoked.

Some tokens have these conditions and might still be doing well, it all depends on de team. Nothing here makes a token a rug until it actually a rug. Stay safe and do not take this as financial advice still. You take responsibility for your own actions.