Despite digital assets’ novel nature and its underlying technology, blockchain, a significant turn off for most investors, is the leading risk involved with this asset class. The cryptocurrency industry has managed to earn the title of ‘Wild West‘ since it lacks regulation, exit scams, and constant security breaches.
In November 2017, Confido, an escrow-based crypto startup, went missing with $375,000 received from its initial coin offering (ICO).
This led to the cryptocurrency market cap falling from $6 million to $70,000 within one week, which left most investors confused.
In February 2018, LoopX, another crypto startup, left the market after raising $4.5 million from investors. According to the statistics released, investors were scammed with $3.1 billion in 2019 alone in crypto exit scams. In 2020, Yfdex, a Decentralized Finance (DeFi) project went missing with the $20 million of investors’ capital just 48 hours after promoting itself online.
The ICOs and ICO exit scams used to be the order of the day back in 2017 and 2108. The same trend has been moved to the DeFi sector after its boom. Most of the scammers have discovered new ways how they can exploit opportunities in DeFi space. For example, the scammers did start a rug pull when they placed liquidity into Uniswap. But they exited the market shortly after receiving the required funding.
Most of these scams happened quickly after the token launch while some took days, weeks, and months. Up to 631 new tokens were listed on Uniswap as of August 9, 2020. 490 out of the 631 had their liquidity reduced to zero within the same week.
Such occurrences are terrible for traders, investors, future startups, and the entire cryptocurrency industry. Despite due diligence being an essential requirement for the investors before committing to any project, experience has revealed that even the reasonable and most publicized offers can be compared to wolves wearing sheep’s clothing. Most investors are skeptical of supporting new projects that will, in turn, affect the future of their yet to be unveiled projects.
Is it possible to have the Investors protected?
With rug pulls and exit scams increasing in numbers, the next essential question people need to ask is if and how can the investors be protected? The response to that question necessitated the formation of the Liquidity Dividends (LID) protocol.
There is a part on the project’s website that read, “Liquidity Dividends Protocol uses new technology that offers solutions for liquidity deposition into Uniswap while it also offers a staking system that is social reward-based”.
The LID protocol will provide its services to different cryptocurrency projects after stating their offerings through the ERC20 tokens. Its solution offers locked liquidity that is combined with a social staking system that rewards participants.
Formed back on July 12, 2020, the LID protocol solution comprises three main parts: LID staking, LID certification of proof of the locked liquidity, and the non-custodial standardized smart contract presale. All the features are well designed to reduce the investors’ risk and encourage social participation and increased project credibility.
The LID protocol already has several success stories below its belt. At the time of going to press, the organization had already started three presales which were all successful. SwapFolio, which is the most recent one, did hit its all-time high in late August 2020.
Digital Assets are not Going Anywhere
These are all indications of the digital asset’s certainty. The sector is growing and evolving from ICO’s to IEO’s, centralized exchanges like Binance to decentralized exchanges, DeFi sector boom, and institutional investors’ influx. There are heavy players like Paypal that have enabled cryptos. You also have hedge funds like MicroStrategy scrambling for BTC (bitcoin). With that, there is no doubt that the digital assets are heading to the mainstream.