Industry experts have cautioned that cryptocurrencies backed by political figures need to implement stronger protections for investors and enhanced liquidity measures to avert another significant market downturn.
Investor confidence remains unsettled following the collapse of the Libra (LIBRA) token, which had the endorsement of Argentine President Javier Milei, leading to a staggering $4 billion loss in market capitalization due to insider cash-outs.
A report from a blockchain analytics firm revealed that more than eight insider wallets pulled out $107 million in liquidity, which initiated the sharp decline.
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To prevent a repeat of such a disaster, tokens receiving endorsements from political leaders will require stronger safety and financial protocols, such as liquidity locking or designating the tokens in the liquidity pool as non-sellable for a specified timeframe, according to the analysis.
The report also indicated that tokens from prominent leaders should impose launch restrictions to limit activities from bot traders and large investors, commonly referred to as whales.
“Mitigating the influence of bots and whales is crucial to minimizing the effects of individuals acting on insider knowledge to control a large segment of the token supply,” stated the managing partner at the analytics firm:
“Projects must aim to offer as equitable a launch as possible so all participants can secure their share without being at a disadvantage against a few affluent or well-informed actors claiming a major portion of the supply.”
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The fallout from the Libra incident resulted in nearly 75,000 traders incurring a combined loss of $286 million, as reported.
The swift decline of the token further emphasized the necessity for liquidity measures, which “guarantee enough liquidity for users to make transactions without significant price shifts,” the expert added, emphasizing:
“This is especially critical during the token’s launch when volatility is high, ensuring ample liquidity to accommodate large trades without causing drastic price changes.”
This analysis emerges just after lawmakers in New York introduced a bill aimed at safeguarding cryptocurrency investors from scheme collapses and insider fraud amid a recent surge in memecoin scams.
Increased transparency required for token launches
The downfall of the Libra token showcases the urgent need for clearer mechanisms for token launches, as articulated by the expert, who remarked:
“This should involve wallet transparency before launches and better due diligence by launchpads on the projects.”
“There will always be some risk associated with launching any token, which is not easily eliminated,” he noted.
“However, launchpads can enhance user decision-making by meticulously evaluating the projects they collaborate with and leveraging the transparency inherent to blockchain technology,” he further explained.
Worrying revelations have surfaced since the downfall of the president-backed memecoin, with some sources indicating that the inner workings of Libra were somewhat known within certain memecoin communities, revealing knowledge of its launch several weeks in advance.
The president has called upon the Anti-Corruption Office to probe all government officials, including himself, for potential ethical breaches, following a statement from the presidential office on February 16.
Political opponents are now calling for his impeachment after his support for the cryptocurrency that resulted in a $100 million scam.
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