In the context of cryptoCrypto is a digital asset and medium of exchange employing cryptography to secure transactions, control the creation of new units,... Read More and decentralized finance (DeFi)Decentralized finance (DeFi) refers to a shift towards building financial applications and processes on decentralized infrastructure, enabling peer-to-peer lending, trading,... Read More, “rug pull” is a term to describe when a liquidityLiquidity is a measure of the degree to which an asset or security can be quickly bought or sold in... Read More provider removes their funds from a decentralized exchange (DEX)Decentralized exchanges facilitate the trade of cryptocurrencies or other digital assets without a central authority. Decentralized exchanges are often peer-to-peer,... Read More liquidity poolLiquidity pools are shared pools of assets that are readily available for trading on a decentralized exchange. To form a... Read More, essentially meaning there is no more liquidity left in the market. When liquidity providers, tokenTokens are created and distributed on a blockchain and can represent a variety of assets or utilities, including commodities, loyalty... Read More holders, and traders panic at the loss of available liquidity for trading, it results in a sell-death spiral. Once liquidity drains, token holders may have remaining illiquid assets that they may not be trade anywhere else. Several projects have taken measures to alleviate risks associated with rug pulling, including committing a certain level of liquidity that cannot be removed (i.e., LP Token BurnA token burn is a process used to destroy tokens to reduce the total supply. The purpose of a token... Read More, Liquidity Locking contract), but this does not eliminate potential risks. For this reason, market participants should conduct due diligence before trading.
