Investing early in a new project is one of the assuming ways that we can probably get more money from it even with just a small amount of initial investments. Like what most of the people always said, "Don't get into FOMO or fear of missing out, but more importantly don't get too late". We hear this a lot and we can see this on every social medias when someone is convincing other people to jump into the project just because they saw a "potential" of 10x or 100x returns of investments with it without even looking at the project's white paper, tokenomics or transparency.
This article will serve as a guidance to everyone who are most likely prone to jump in this kind of scheme especially when degen trading or short term investing in a new project. Either it's a meme project or not, everything that will be tackled in this article will be a part of your "Do your own research".
Liquidity Is Only Locked For A Short Time.
If you don't know what Liquidity means and what its purpose is, the most simple explanation for that is;
Liquidity of a token is the most essential part for the token for everyone to be able to buy and sell the token in the market. If the token doesn't have Liquidity, it can't be traded on any exchange. And if the Liquidity of the token is low, 1 big buy can make a big impact of its price while if it has huge Liquidity, you can buy and sell the token at the most stable price possible.
When doing degen trading, new projects mostly focus more of adding the token's Liquidity so that its community can start trading it. The developer can decide whether they will lock it for a few days, weekes, months of forever. It's always up to the team behind the project to do so.
So what will happen if the time duration of locked Liquidity expires?
This is where the concern gets rough. The developers must be transparent to the community that it will locked the Liquidity again to ensure and gain more confidence from its investors. And if the developers won't lock the Liquidity, they can always pull out or sell those Liquidity and dump it on the market resulting a huge red candle stick in the token's chart. Its price will be at zero or no value... And that's what you call a rugpull.
When that happens, people who invested in that rugpull projects will now only have the token but zero value. People can do nothing with it anymore and all they need is to move on and find another project with real potential.
So what should you do to avoid this?
Simple.
Find a project with great tokenomics, make sure the token's smart contract is renounced - renouncing the smart contract of the token means that the developer of the project doesn't have anymore control to the token. They can't mint new tokens, can't change the buy and sell slippage and can't disabled trading the token.
Research if the project has locked the token's Liquidity for a very long time or much better of it was lock forever - meaning the developers cannot unlock the token's Liquidity and sell it.
However, locking the Liquidity forever doesn't give assurance that the token can't be rugpulled. Even if it was locked forever, if the developers still have access to mint new tokens and sell in the market, that will be a new case called slow rugpull. And that will be tackled in the episode of this article.
Final Say.
This article is the first one from my series of articles called "The Basic" that's all about cryptocurrency tips, advices and my experiences in crypto trading from the past years that I will be publishing every week. The sole purpose of this series is to guide everyone especially new people in cryptocurrency how to do a research and avoid losing investments.