Glossary
Here are detailed insights on typical warnings that you can find in PaladinAI Audits:
Hidden Owner: When a crypto project has a hidden owner, it suggests that the ownership renouncement might be fake. Even if it appears that the ownership has been renounced, the deployer's wallet might still have a backdoor entry to the contract and can still modify it. This characteristic typically implies that the owner of the contract may have malicious intentions.
Insufficient Liquidity (Rug Pull): Insufficient liquidity refers to a situation where a cryptocurrency lacks enough trading volume, making it difficult to buy or sell significant amounts without affecting the price. This condition is ripe for a "rug pull," a type of scam where developers suddenly remove all their funds from the liquidity pool, drastically dropping the token's value and leaving investors with worthless assets. Investors should be cautious of projects with low liquidity as they are more susceptible to manipulation and can result in significant financial loss.
No LP Lock/Burn Found: Liquidity Pool (LP) lock or burn is a mechanism to ensure that the liquidity provided to a decentralized exchange cannot be withdrawn for a set period or ever, respectively. The absence of LP lock or burn in a project increases the risk of a rug pull, as it allows the project creators to withdraw the entire liquidity pool at any time, potentially leaving investors with a worthless token. This practice is often a red flag indicating that the project may not be committed to long-term sustainability or investor protection.
Modifiable Taxes: In some crypto projects, developers have the ability to modify taxes or fees on transactions at their discretion. This feature poses a risk as it could lead to unexpected or exorbitant fees, affecting the profitability and liquidity of the investment. It also gives developers significant control over the token's economics, which can be abused to their benefit at the expense of the investors. Projects with modifiable taxes require careful scrutiny as they can lead to loss of trust and value erosion.
HoneyPot: A HoneyPot in cryptocurrency refers to a deceptive scheme where a token appears tradable, but only allows purchases and not sales. Investors can buy the token but find themselves unable to sell it, effectively trapping their funds. This type of setup is a major red flag, often indicating a scam. Investors should be wary of tokens that show signs of being a HoneyPot, as it could lead to a total loss of the invested capital. Researching the token's smart contract and looking for independent audits can help identify such schemes.
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