The collapse of the MANTRA (OM) token has left many investors grappling with significant losses, as the value of the token plummeted by 90% in a short period. While the event was a stark reminder of the risks involved in cryptocurrency investments, it also provided valuable lessons on how to avoid similar pitfalls in the future. Experts have identified several key factors behind the OM crash, and by understanding these red flags, investors can better protect themselves from falling victim to the next major token collapse.

One of the major factors contributing to the OM collapse was its flawed tokenomics. In 2024, the team behind MANTRA made significant changes to the token’s supply structure. The OM token migrated to the MANTRA Chain, and its supply was increased to 1.7 billion, shifting to an uncapped, inflationary model. This shift diluted the value of existing tokens, leaving investors with a significantly devalued asset. Experts, including Jean Rausis from SMARDEX, pointed out that this inflationary model and the concentration of 90% of the tokens within the team raised concerns of potential manipulation. Such centralization undermines the decentralization goals that many investors value in the crypto space. As such, before investing in any project, it’s crucial to examine the token distribution and be wary of projects with a high level of centralization, as these are potential breeding grounds for market manipulation.

Another red flag was the unusual price patterns that OM exhibited before the crash. Despite a broader market downturn, the token’s price experienced abnormal spikes and flat periods, which raised suspicions of artificial price manipulation. This type of price action often signals issues within a project, as natural market forces usually dictate the pricing of a token. To avoid falling into similar traps, investors should keep an eye on price trends and use technical analysis to identify any irregular price movements that could indicate underlying problems with a project.

Liquidity gaps are another important factor to consider. Before the crash, OM’s fully diluted valuation (FDV) reached an astronomical $9.5 billion, while its total value locked (TVL) was just $13 million. This massive gap signaled an overvaluation of the token, with little liquidity to support such a high valuation. Additionally, the project’s airdrop, which disproportionately favored insiders and was marred by delays and eligibility rule changes, only added to concerns about the project’s legitimacy. To safeguard against such risks, investors should always evaluate a project’s liquidity and ensure that its FDV aligns with its TVL.

Whale movements and large transfers into exchanges can also act as warning signs. In the case of OM, several large transfers were made from wallets linked to the team into centralized exchanges, indicating that sell-offs were likely imminent. Investors should monitor on-chain data for any significant transfers, as these could be signals of large holders preparing to liquidate their positions, which could lead to a market crash. Blockchain tools like Arkham and Nansen can help track whale activity and alert investors to potential risks.

Finally, the involvement of centralized exchanges (CEXs) in the collapse of OM remains a point of debate. While some experts believe that forced liquidations during low-liquidity hours exacerbated the crash, others argue that this was merely an excuse. Regardless, it’s clear that excessive reliance on CEXs can increase risk. To protect themselves, investors should minimize their exposure to centralized platforms and consider holding tokens in self-custody wallets. Additionally, reducing leverage and avoiding trading during low-liquidity periods can help mitigate the risk of forced liquidations.

In conclusion, the MANTRA (OM) collapse serves as a cautionary tale for cryptocurrency investors. By staying vigilant, understanding tokenomics, monitoring price action, evaluating liquidity, and being aware of whale movements, investors can reduce their risk of encountering similar losses. Diversification and sound risk management strategies are key to navigating the volatile crypto market safely.