Crypto Exchange’s leading Binance has issued a critical risk warning to users, particularly those who provide DEX liquidity.
In a recent release, Binance shares important warnings and user safety guidance on Binance Alpha, a platform within Binance wallet focused on early stage crypto businesses with potential for growth within the Web3 ecosystem. Binance Alpha is a primary token selection pool that aims to increase the openness of the token evaluation process for Binance Exchange lists.
Binance revealed that it has discovered certain suspicious, coordinated activities aimed at benefiting from users who provide DEX liquidity. A typical red flag includes unusually high yields, rapid price fluctuations, or aggressive promotion of trading activities and incentives.
One common strategy is to use trading rebates or similar incentives to seduce users and provide liquidity. These dynamics can simulate positive market conditions and engagement, but hide the potential for frequent, significant structural risks and dramatic price reversals.
What do you pay attention to?
Binance outlined what liquidity pool (LP) providers and traders should be careful about. Before adding liquidity, liquidity pool providers should carefully consider the market capitalization of the project, fully diluted valuation (FDV), and price volatility. Especially in low-fluid conditions, care must be taken to abnormally high LP yields.
Before trading, traders need to understand the liquidity of the token and the distribution of holders. They must be particularly cautious about tokens that have signs of concentrated ownership or signs of a rapid, unknown price increase. They should maintain information and make decisions based on research rather than hype.
Traders should also pay attention to Binance Risk Warning banners that appear on high-risk projects before trading.
The rule of thumb for crypto users is to always do research (dyor), understand risks, manage exposure wisely, and be aware of potential bad actors and manipulation tactics.
