The DeFi craze will probably go down as one of the most bullish crypto cycles given the rate at which this niche has grown. At the beginning of the year, the Total Value Locked (TVL) of digital assets in DeFi was barely $1 billion; we are now talking about a tenfold increase as per the current $10.6 billion TVL on DeFi Pulse metrics. Despite its ‘rising star’ status, DeFi is now at task to provide consumer protection solutions as well. This development is a result of increasing scams in DeFi space in what has come to be dubbed a ‘rug pull’ in crypto slang.

Malicious actors appear to have cracked the code with Uniswap, taking advantage of the exchange’s decentralized nature to dupe unsuspecting ERC-20 token buyers. Basically, the developers behind ‘rug pull’ scams create liquidity pools on a DEX like Uniswap and then proceed to remove their vested tokens when prices pump. This scenario leaves the holders who had bought ‘rug pull’ tokens with worthless or illiquid digital assets’, hence a typical ‘rug pull’. While this may seem crazy and more reason to keep off DeFi, a project named LID protocol has debuted solutions to completely eliminate rug pulls.

LID Protocol’s LIFTOFF Finance

The LID protocol initiative was created with an intention to save prospective DeFi investors the agony of getting ‘rug pulled’. This protocol basically acts as an intermediary between projects and investors by giving presale certifications to genuine DeFi innovations. Instead of investing via Uniswap directly, LID protocol users can leverage its services to get access to projects that are less likely to end up in a ‘rug pull’. Consequently, DeFi innovations that launch via this protocol are better positioned to receive sizable contributions to their liquidity pools.

This month, LID protocol will further scale its product range with the debut of LIFTOFF Finance, a self-service platform built to combat rug pull scams at smaller scale levels. The project which is also fully-automated targets smaller startups looking to raise funds within the DeFi niche. Some of the features that LIFTOFF will offer to protect against rug pulls include liquidity & time locking of team and marketing tokens. It will also feature token audit requirements for non ERC-20 projects. Notably, LIFTOFF is a ‘replica’ of LID protocol’s current model, only that it serves smaller startups instead.

The LID Protocol Pre-Sale Certificate

While LIFTOFF Finance comes as a reprieve to DeFi startups and investors, LID protocol had already debuted a non-custodial locking solution targeting bigger players. In fact, it is the success of this initiative that ultimately inspired LIFTOFF Finance. The LID Certified Presales platform acts as an avenue where DeFi teams can launch their projects and have liquidity tokens locked based on pre-coded smart contract agreements.

LID Protocol actualizes this value proposition through a licensing and certification business model where DeFi innovations part with a 5% charge fee. In return, the platform ensures that no sale execution can be initiated outside the smart contract agreement. This basically eliminates the threat of rug pulls since LID protocol locks token allocations that are greater than 5%; in most cases they are reward tokens, DAO allocations or team tokens.

It is also quite noteworthy that LID protocol’s governance model is based on social staking incentives as part of its decentralized architecture. The platform upholds decentralized governance through its native token, LID. This governance token can be used to vote for developments on LID protocol and carries incentives such as doubling rewards for LID stakers that have contributed to over 50% of the DAO votes in a given month. Other perks include referral fee cuts for LID staking and tax exemption on the same.

Conclusion

The DeFi space is only getting started, at least for the optimists like Galaxy Investment Partners CEO, Mike Novogratz. He recently invested in DeFi focused asset management firm ParaFi Capital and noted that the fallen projects are part of the lesson, although not good for the ecosystem growth,

“The same way a lot of the ICOs gave crypto a bad name, there are plenty of these coins that became Ponzi-like … It’s kind of gamifying money. There are still lessons we are going to get out of that, but it’s not great for the ecosystem.”

That said, we cannot ignore the value addition of rug pull solutions and their probable impact on DeFi mainstream adoption. While it may seem like a tall order to oversee decentralized activity, smart contracts can be used counterintuitively to perform this role. A platform like LID protocol and the prospectus LIFTOFF paint a picture of what a rug pull free DeFi ecosystem will operate like.