- DeFi is the fastest growing area of cryptocurrencies with total assets of over $ 200 billion.
- Scams are widespread on DeFi, and some industry insiders feel that they can be infested in their own right.
- Insider asked three DeFi industry veterinarians for tips on how DeFi beginners can avoid the most common scams.
Crypto is the archetypal era of investment, and DeFi, or decentralized finance, is at the forefront of the fast-growing, loosely regulated $ 2 trillion industry. Within the past year, the total value of locked DeFi has become widely accepted by private investors and institutions, jumping from $ 630 million to over $ 200 billion.
However, not all cryptocurrencies are legally created. According to Chainanalysis, 79% of all cryptocurrency scams last year were solely due to DeFi, which targets everyone from the average Joe to tech millionaires. Scams that lure investors into crypto projects just to run out of all their money, or scams, are a particularly common form of scam in the DeFi world. Whether you’re thousands of investors who lost money on a SquidGame DeFi token rug pull or Mark Cuban who lost $ 200,000 on a rugged DeFi token, anyone can claim a DeFi scam.
With so many opportunities to be discovered in the DeFi world, it’s very appealing for new investors to want to dive first. However, due to the prevalence of scams, those who want to join the battle need to know what scams they need to be aware of.
What is DeFi?
DeFi is growing so dynamically that it’s hard to come up with a single definition for the early industry. However, DeFi generally refers to various protocols that utilize blockchain technology to do financial business.
Common investment ideas under the DeFi umbrella include staking, lending, margin trading, DeFi native tokens and stablecoin. Simply put, DeFi has shaken the traditional financial world and quickly became too big to be ignored.
Hamzah Khan, Head of DeFi at Polygon, said: This field. It’s the future. ”
But this “future” is now full of fraud. Recent examples of DeFi scams include Beanstalk attacks, where hackers earned over $ 180 million last week, and iCloud phishing scams, which cost one MetaMask user $ 650,000.
Many scams are specifically designed to target new investors who are not tech-savvy. Therefore, these investors need to know what to pay attention to and how to avoid the most common form of DeFi scams.
Stick to DeFi tokens on a centralized exchange
There are many ways to interact with DeFi, but one of the most common is to use a decentralized exchange, namely DEX such as Uniswap, PancakeSwap, SushiSwap, to invest in other niche DeFi projects. To deal with a house. But for those just entering the world of DeFi, these exchanges pose an unnecessary danger.
A decentralized exchange is a peer-to-peer exchange where two individual traders exchange cryptocurrencies. They usually lack the clean interfaces that major exchanges such as Coinbase, Binance and Gemini have, and are primarily focused on creating markets for a wide variety of cryptocurrencies.
However, due to the nature of a decentralized exchange, no regulatory agency reviews the projects listed on the platform. Akash Takayar, CEO of Leeway Hertz Technologies, recently wrote that “any ERC-20 token can be launched in Uniswap if a liquidity pool is available.”
Simply put, most people can list their tokens on major decentralized exchanges. That is, most people do.
It’s hard enough for professionals to distinguish between legal and illegal DeFi projects, so for the average investor who doesn’t have the time to spend hours pouring projects and stopping fraud. There is a further problem.
Josh Olin, the founder of the GTFO (Get The Fraud Out) cryptocurrency, has devoted his career to eliminating fraud in DeFi. His advice to beginners is to use only centralized exchanges. In a recent interview, Olin said, “Coinbase, Gemini, or Kraken needs to scrutinize the projects listed on the platform. There is a layer of security before a listed company like Coinbase lists tokens. I know. Platform. “
Beware of “gem talkers”
“Gem Talker” is a colloquial expression used to describe an influencer who promotes a crypto project online to viewers via social media. They often promise huge profits with headlines that advertise big profits in a short period of time, get thousands of likes and retweets, and seem credible at first glance.
However, because gem talkers do not have a form of monetary verification, the meme is “not financial advice” that is widespread throughout social media and often builds online followers using social engineering and clickbait titles. The phrase has appeared.
Allenley, a former MIT researcher and founder of beta finance, told insiders that he “ignores social media DeFi advice,” the most common malicious attackers use to deceive people. We recommend visiting websites such as RugDoc.io that showcase some of these techniques.
Be realistic and do your own research
Part of the main attraction of crypto for investors is the promise of huge profits — but sometimes new investors want to make enough money to forget they do their homework. Tushar Aggarwal, founder of cryptocurrency staking company Persistence and general partner of Outlier Ventures, said “we recommend reading at least one audit report” for the project before considering an investment. ..
In addition, it is a good idea to focus on projects with public founders. An Argoland-like project founded by MIT’s award-winning computer scientist Sylbio Mikari. USDC was founded by former venture capitalist and early internet pioneer Jeremy Arrell. Founded by almost a decade of cryptocurrency veterans Sergeinazarov, Chainlink has all public leadership.
This is important in building investor confidence, as it simply means that the founders of the project cannot receive and disappear people’s money. Their reputation is bet with the project, so they can’t just pull and disappear, as anonymous founders can.
Obviously, not all DeFi projects have such a respected public founder, but it’s important to see the background of the founder and to find out the background of the project itself before investing capital. It’s a step.