The self-proclaimed “doctor” has lessons to teach investors about the increasingly popular lending sector, Decentralized Finance (DeFi), which is becoming a battleground for cryptocurrency-related fraud.
Even the most experienced DeFi players can find themselves hampered by hacks and scams. However, private investors in this sector are hungry for basic fraud prevention, creating new types of “vigilantism” and start-ups to meet demand.
More than a year ago, one of the Silicon Valley couples lost about $ 200,000 in a DeFi scam. Assuming the online pseudonym “The Rug Doctor,” his wife, who spoke to Yahoo Finance on condition of anonymity, warned a crypto evaluation company that a new project could fool investors into blinding to big profit promises. I run it.
At the end of 2020, a friend introduced the couple to DeFi, who had invested in cryptocurrencies a few years ago, and they soon realized that DeFi was fascinating. This product offers a variation of crypto lending that allows investors to get a yield of 50-300% APY anywhere.
Intoxicated by the return from the “staking” cipher using the protocol, the couple quickly bite — and finally discovered Molten Swap. This is a project that promises an amazing annual interest rate of 3,000% (APY).
“My husband quickly went all-in with six-digit money. He was soon scammed and lost about $ 200,000. It was horrifying,” Rag Doctor told Yahoo Finance on the phone. Her pseudonym is a play of the term crypto developers seduce investors and “pull the rug” to bail with money.
The couple refused to quit DeFi, whether because of the high-earning fixation or the hope that they might somehow recover the money. Over the weeks, Rag Doctor was immersed in the details of esoteric smart contracts and was informed about how they actually work.
At its peak in November, the market capitalization of all DeFi tokens was just under 6% of the total crypto market. However, some regulators are nervous because it believed in the breathtaking growth of the crypto segment.
According to research firm Fundstrat, the DeFi coin market cap for more than 2021 has risen from $ 1.7 billion to $ 170 billion, with capital flowing into the DeFi protocol between May 2020 and the end of 2021 between $ 1 billion and $ 250 billion. It surged to the dollar.
In a recent report, Fundstrat said, leveraging blockchain-based smart contracts, “DeFi is committed to creating a more accessible, efficient and transparent financial system.”
Make smart contracts smarter
By learning a programming language called Solidity used in most smart contracts, Rug Doctor found that he could actually evaluate a project in a way similar to reviewing a company’s financial statements. She learned how to identify smart contracts based on her PhD programming experience.
Before she and her husband allocated funds, she began reviewing the project’s smart contracts and discovered many scams. As a result, she began publishing reviews on social media, and free content quickly became popular. By the end of the summer of 2021, Rag Doctor’s review had turned into a complete business model.
I can’t say that the project advertised on the platform will work, but at least I’m sure it won’t hurt users. Users appreciate this.Rag Doctor
The company currently has 30 employees worldwide, including Malaysia-based college students, London communication professionals, and grandmothers living in Thailand.
Eight rug doctor employees review smart contracts full-time and assign a “risk assessment” to the potential for a particular protocol to “lag pull” an investor. It also performs a basic Know Your Customer (KYC) check for each project team.
The business provides basic risk mitigation resources for investors seeking to avoid fraud, but monetizes website traffic by serving ads to scrutinized projects.
Positive reviews or “badges” can still be robbed by illegal projects, but hundreds of investors are using RugDoctor’s research. If you use the “Review by RugDocs” badge to unfairly catch a project, you will warn the company. This marks the project as an unexamined investment.
New investors may not be as plugged in as old investors, but the founders say RugDocs offers one of the better free alternatives to fraud prevention in the market. I did.
“I can’t say that a project advertised on the platform will work, but at least it won’t hurt users. Users appreciate it,” Rag Doctor told Yahoo Finance.
Hackable software vulnerabilities can pose hidden but costly risks, even for the most capable DeFi teams, but individual investors in the space also want basic fraud prevention. Many pseudonym guards and taxpayers have been born to meet demand.
“Attracted by high profits”
As cryptocurrency products become more widespread, efforts are underway to reduce the amount of money online scammers can squeeze from unprotected investors. People like regulators and rug doctors have tried to warn investors who are intoxicated with high profits, but in the volatile and opaque crypto market, it is impossible to catch all scams.
In particular, DeFi has landed on the cross of Chairman Gary Gensler of the Securities and Exchange Commission. He pledges to protect investors and be accountable for what the company sells. Recently, the SEC announced that crypto company BlockFi has paid $ 100 million to settle allegations of high-yielding interest-bearing products.
On the same day, the agency released breaking news to warn investors that companies offering interest-bearing accounts may look like those offered by banks and credit unions, but are not so secure.
According to Bankrate, peer-to-peer lending platform Lending Club offers the most competitive interest-bearing savings account this month with a yield of 0.65%. Loan products from crypto companies such as BlockFi often provide customers with an APY of 8% or higher.
On the other hand, in the much newer DeFi market, similar crypto bond strategies promise higher yields in exoticism.
“Many people are attracted to high profits, but we remain vigilant about avoiding the risks of hacking and other smart contracts that can negatively impact performance,” said an analyst at the crypto research platform. Messari told Yahoo Finance.
According to Sun, dynamic investors are greedy for better information. As the Block report recently pointed out, Wall Street is empowering crypto research to feed investors hungry for credible information.
David Hollerith describes Yahoo Finance’s cryptocurrency.Follow him @dshollers..
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