qerranews 
Recently, Pump.fun, a crypto launchpad that offers instant token creation and market access, is attracting a lot of attention. Undoubtedly, many traders are falling into meticulously planned scams that take advantage of the system’s flaws due to the promise of fast profits. This article explains the systematic shortcomings present within Pump.fun that allows traders to be defrauded through token minting, fabricated FOMO (fear of missing out), and liquidity manipulation.
The Center of Issues: No Underlying Security Protocols
Unlike reputable launchpads, Pump.fun doesn’t impose any significant security checks through manual account verification, allowing tokens to be minted in bulk. This is a very dangerous approach as project owners are creating tons of tokens to enable trading behavior that abuse uninformed investors.
How Traders Are Getting Trapped
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Bulk Minting and Assets Being Utilized Pre-Emptively:
- In most cases, the project owners are early stakeholders in Pump.fun projects.
- This allows them to influence the price action at the onset, creating the illusion that the price of the token is rising naturally.
- Often account owners of Pump.fun projects are the first investors.
- They allocate a hefty budget and acquire a considerable stash of tokens through multiple wallets as soon as the token launches.
- This tactic enables them to manipulate the initial price movements, making it seem like there is actual organic traction.
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Faux Market Excitement and Fear of Missing Out:
- These insiders impose price controls and artificially manipulate the price for the token, giving it the appearance of a hyped investment.
- Social media and the influencer sphere, having been ‘influenced’, propagate narratives that overshoot the truth and exaggerate the value of the token.
- FOMO driven trades, virtually beliefless, commence pouring funds towards what they think is a favorable movement.
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Liquidity Extraction and the Rug Pull:
- With the addition of new retail traders who buy at unreasonable prices, the insiders begin unloading this specific begging of the market.
- With a marquee amount of liquidity, this segment dump sell wreaks unprecedented havoc on the token value.
- Retail investors are left stranded after purchase the asset at the inappropriate time, holding worthless tokens as liquidity depletes.
Legal action against Pump.fun: Binance
The growing concerns over fraudulent activities on Pump.fun have reached a point where major industry players are taking notice. Notably, Binance has signaled potential legal action against Pump.fun, citing concerns over the platform’s lack of security measures and the resulting harm to investors. This development underscores the severity of the issues and highlights the increasing pressure on Pump.fun to implement stricter safeguards.
Impacts and Damage in the Real-World
- There are hardly any ways to recuperate one’s funds post suffering tremendous loss from such schemes.
- Pump.fun, having no set rules and security places, morphs itself to be a hotbed for fraudulent projects.
- Instances like these have been observed in the wider crypto sphere, which has further undermined trust in the decentralized finance (DeFi) sector.
Ways To Safeguard Your Assets
How to Avoid Falling For Scams at Pump.fun
Should you choose to trade on Pump.fun or consider investing in new tokens, here are vital steps you should follow to stay safe:
- Investigate the Project Team: Having unknown developers or no information at all brings concern to the project.
- Analyze Wallet Movements: Monitor some insiders activity and multiple wallet transactions using blockchain explorers.
- Beware of Sudden Price Surges: Sharp price increases in a very short timeframe are usually a sign of price manipulation.
- Check for Locked Liquidity: A developer can easily remove liquidity from the market, leading to a huge collapse in value on the asset if liquidity is not locked.
- Don’t Let FOMO Drive Your Decisions: Instead of following popular trends, conduct proper research.
Conclusion: A Call for Transparency and Security
Because of the lack of security and regulation, Pump.fun has turned into a hot spot for fraudulent activities. Investors need to be cautious and perform their due diligence before investing in new tokens. The lack of stringent guidelines and verification measures from launchpads means the cycle of deceit will go on, gripping more unwary investors in another pump-and-dump scheme.