The hit Netflix show “Squid Game” recently inspired the creation of multiple cryptocurrency tokens. None of them established an official affiliation with the actual Netflix production. However, due to the hype around the South Korean series they immediately gained popularity and price gains. The absense of a technology that locks liquidity to eliminate the possibility of a rug-pull is the main reason behind the incident that followed.
The most poplar of these tokens is the SQUID GAME token, which rose more than 35,000% within 3 days. The team behind the project advertised that the SQUID GAME token is a utility token for an online game launching in November. Players would need to own a number of tokens to play the game with a set amount of entry fee. The winner of the game would win 90% of those fees. SQUID GAME token was built on the Binance Smart Chain (BSC).
Although the token gained immense popularity, several grammar inconsistencies and errors in the project’s whitepaper raised warnings among the crypto community for a possible scam. In addition, Coinmarketcap issued a warning, stating that according to “multiple reports” users could not sell the token on PancakeSwap. Since the whitepaper did not outline any locking technology for tokens or liquidity, the community became highly skeptical for the project’s legitimacy.
SQUID GAME Token Rug-Pull
On Monday, November 1st 2021, project members appeared to remove and sell the liquidity of the SQUID GAME token. This was done through PancakeSwap a decentralized exchange (DEXs) supporting BSC token trading. The project’s website, twitter account and whitepaper were unavailable soon after the incident which caused a sudden price crash of 99.99% to the token. The token price plugged from around $2860 to a near $0 value within minutes. Scammers cashed BNB tokens which is the BSC native token. This address seems to have been involved with the rug-pull, with an approximate current worth of more than $3million.
This incident is the perfect example of a rug-pull. A rug-pull occurs when project creators withdraw their Liquidity Pool tokens from a decentralized exchange pair. This action drives the token’s price close to $0. The scam token is initially paired with a popular cryptocurrency which is built on, such as Ethereum or BNB. BNB was the pair for the SQUID GAME token.
The scammers abandoned the project and gained all worthy BNB tokens. The SQUID GAME token initially rose due to the hype around the popular Netflix show, even though it did not have an official affiliation with it.
Rug-pulling is a massive challenge for the DeFi ecosystem. Several scammy projects take advantage of how liquidity pools work in order to withdraw the liquidity and run away with investors’ funds. The real question is how can the DeFi community solve this big problem? TrustSwap has the solution!
Liquidity Locks
First, let’s understand how liquidity pools work.
Projects raise capital and use a percentage to supply the DEX pool with liquidity in one or more token pairs. In return, the DEX provides for each token pair a Liquidity Pool token that represents shares in that pool. Those tokens are also used to remove the liquidity from the DEX. An example of a Liquidity Pool token is SQUID/BNB.
Via the Liquidity Locks wizard, projects can lock these liquidity tokens by sending them into a time-released vault that will only return the Liquidity Pool tokens at the configured date. During the lock period, the project cannot pull the liquidity from the exchange and dump those tokens on the holders causing the token price to drop near $0. This is what happened with the SQUID GAME token rug-pull.
The vesting schedule is public and includes a transparent view of release dates and amounts to investors, as a proof of trust and security.
Projects can apply the Liquidity Locks to their tokens after they supply the liquidity of the pair(s) to the DEX. Projects access https://team.finance/lockups and follow this simple procedure:
- Under “Create New Lock”, select the appropriate chain
- In step 2 select: “Liquidity Tokens” and follow the steps
Liquidity Locks are available for projects on Ethereum, Avalanche, Binance Smart Chain, Polygon, Algorand and Conflux. More chains will follow. Users connect with a compatible wallet such as Metamask to complete the above steps.
Token Locks
There is always a possibility scammers hold a significant amount of tokens outside the liquidity pool. They could also dump all tokens they own causing a huge price decline and abandon the project. That’s why we created Token Locks.
Token Locks allow project team members such as founders and token developers to set up token lock parameters. Projects can lock a percentage of their pre-mined token supply or team owned tokens into our time-locked decentralized smart contract vault.
Projects can not access these tokens until the end of the locked period(s). This way the community and investors ensure that the team will not mass dump tokens during the contract period, causing a so-called Exit Scam. This is a huge innovation as scammy projects cannot maliciously sell off all their tokens, leaving holders, stakers and investors with a close to $0 token price.
Team members navigate to https://team.finance/lockups and follow this simple procedure in the wizard:
- Under “Create New Lock”, select the appropriate chain
- In step 2 select: “Project Tokens” and follow the steps
Users must connect with a compatible wallet such as Metamask to complete the above steps. The token lock parameters are set via smart contracts technology and are accessible for everyone to evaluate by clicking “View” next to the token of preference in the https://team.finance/ dashboard. Token Locks are available on the same chains as Liquidity Locks.
Maximize Security with TrustSwap
Rug-pulls and exit scams are big security issues on the DeFi ecosystem. Both Liquidity Locks and Token Locks enable projects to increase trust within their community and investors by time-locking their team tokens, liquidity and raised amount. These services act as a proof of security and trustwhorthiness that projects can showcase to potential investors. All details of locked tokens are accessible on our transparent, publicly available dashboard.
Check out this blog post for more details on how TrustSwap locking services integrate together, as well as with the MINT token generator for maximum safety.
