Industry voices warned that politically supported cryptocurrencies must adopt stronger investor protection and liquidity protection measures to prevent another major market collapse.
Investor sentiment remained shaky after the Libra token approved by Argentine President Javier Mairay, but insider cashouts received a wipeout of $4 billion in market capitalization.
At least eight insider wallets have withdrawn $107 million in liquidity, causing a massive collapse, according to blockchain analytics firm DWF Lab.
Libra/USDC market capitalization. Source: Kobeissi Letter
To avoid a similar meltdown, tokens with presidential approval will require more robust safety and economic mechanisms, such as creating liquidity locks and liquidity pool tokens.
The report says well-known leader tokens will also need launch restrictions to restrict participation from cipher sniping bots and large holders or whales.
According to Andrei Grachev, managing partner at DWF Labs, “Restricting bots and whales’ activities is essential to limiting the impact of individuals acting on insider information.”
“The project must strive to provide as fair launches as possible so that all participants have an equal opportunity to secure quotas and are not disadvantaged by a small number of funded players who claim a large portion of the supply.”
Source: DWF Lab
According to a report by DWF Labs, the Libra scandal has resulted in 74,698 traders losing capital worth $286 million.
The token quick meltdown further explained the need for liquidity locks. This “ensures that it is liquid enough for users to buy and sell without high slipping,” Grachev says.
“This is especially valuable during the launch phase of tokens when there is high volatility and ensures that there is enough liquidity to meet large transactions without the impact of a large price.”
The DWF Labs report comes a week after New York State Senators introduced legislation aimed at protecting crypto investors from ragpur and insider fraud amid the latest wave of memocoin scams.
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Improves transparency required to launch tokens
Libra Token meltdowns indicate the need for a more transparent token launch mechanism, explained Grachev of DWF Labs.
“These include pre-launch wallet transparency and improved due diligence for the project.”
“There’s always a certain amount of risk when launching a token, something that cannot be easily alleviated completely,” he said.
“Nevertheless, by carefully scrutinizing the projects they are affiliated with and making the most of one of the core features of blockchain – transparency, LaunchPad allows users to make more informed decisions,” he added.
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Several troubling developments have emerged since the Memocoin meltdown approved by the Argentine president. Among them, Libra was the “open secret” of several memocoin circles, and was aware of the release of the token two weeks ago.
Milei has requested the Anti-Corruption Bureau to investigate all government members, including the president, for potential fraud, according to a February 16th X statement issued by Oficina del Presidente, Argentina’s presidential office.
Milei faces a call for each ammo from his political opponents after supporting a cryptocurrency that has been turned into a $100 million ragpur.
https://www.youtube.com/watch?v=6unogdvqwre
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