Politically Endorsed Cryptocurrencies Must Adopt Stronger Investor Protections

Industry voices warned that politically endorsed cryptocurrencies must adopt stronger investor protections and liquidity safeguards to prevent another major market collapse.

Industry voices are calling for new safety and liquidity measures to be adopted by politically endorsed cryptocurrencies in order to prevent another major market collapse.

The calls come as investor sentiment remains shaken following the collapse of the Libra (LIBRA) token, which was endorsed by Argentine President Javier Milei. The token underwent a $4 billion market cap wipeout after insider wallets began cashing out.

According to blockchain analytics firm DWF Labs, at least eight insider wallets withdrew $107 million in liquidity, triggering the massive collapse. To avoid a similar meltdown, tokens with presidential endorsements will need more robust safety and economic mechanisms, such as liquidity locking or making the tokens in the liquidity pool non-sellable for a predetermined period, DWF Labs wrote in a report.

The report also notes that tokens from high-profile leaders will need launch restrictions to limit participation from crypto-sniping bots and large holders, or whales.

“Limiting bot and whale activity is essential in limiting the impact of individuals acting on insider information to corner a large percentage of the token supply,” stated Andrei Grachev, managing partner at DWF Labs.

The Libra scandal saw 74,698 traders lose a cumulative $286 million in capital, according to DWF Labs’ report. The token’s quick meltdown also highlighted the need for liquidity locking, which “ensures that there is sufficient liquidity for users to buy and sell into without high slippage,” Grachev said.

DWF Labs’ report comes a week after New York lawmakers introduced legislation that's designed to protect crypto investors from rug pulls and insider fraud, amid the latest wave of memecoin scams.

More transparency needed for token launches

The Libra token’s meltdown showcases the need for more transparent token launch mechanisms, explained DWF Labs’ Grachev.

“There’s always a degree of risk when launching any token, something which can’t easily be fully mitigated,” Grachev said. “Nevertheless, by carefully scrutinizing the projects they partner with and taking full advantage of the transparency that is one of blockchain’s core features, launchpads can empower users to make more informed decisions.”

Some troubling developments have emerged since the meltdown of the memecoin endorsed by the Argentine president. For instance, Libra was an “open secret” in some memecoin circles, which were aware of the token’s launch up to two weeks in advance.

Milei has requested the Anti-Corruption Office to investigate all government members, including the president, for potential misconduct, according to a Feb. 16 X post by Argentina’s presidential office, Oficina del Presidente.

The president is also facing impeachment calls from his political opponents after endorsing the cryptocurrency that turned into a $100 million rug pull.