Stay Safe in DeFi Space - Avoid Scams In Decentralized Finance


Because decentralized finance is permissionless, it provides us with both freedom and danger. Because no one needs permission to engage in Decentralized Finance, anybody may do so, including not just legitimate users but also crooks, who never sleep.

The greatest way to be safe in crypto is to have both knowledge and a robust community that looks out for one another.

Websites that are phishing

On the Binance Smart Chain, there are already several well-established firms in the DeFi industry, such as PancakeSwap Finance and Biswap. When compared to newly constructed platforms, using well-established platforms might be considered a safe bet.

However, you must exercise caution while using these well-known DeFi sites, since their popularity has resulted in the emergence of evil twins on the internet. What I'm referring about are cloned websites that seem identical to the originals. The URL is also nearly identical to the genuine one.

Always double-check that you're on the right website and not a malicious spoof that might compromise your connected wallet. The simplest approach to achieve this is to bookmark the genuine websites in your browser and then only visit them through the bookmarks.

If you click on the links on CoinGecko or CoinMarketCap, you'll know you've arrived to the official website. 

Taking a Look at New Projects

Being one of the first users of new DeFi products is always advantageous because the incentives are generally bigger at first and decrease as more people join. On the other side, it is far riskier than utilizing a well-known DeFi player because you have no way of knowing if the new project is 100% legitimate or not. To assess the authenticity of the new initiative, you must #DYOR extremely carefully.

When conducting your own research, there are a few things to keep in mind.

1. Differentiating Factor
The first and most crucial question you should ask yourself is if this project is merely a cheap clone of an existing project or whether it brings genuine innovation to the DeFi market. You can also screen out a lot of bad initiatives with this query. Determine whether or if the project you're assessing has any rivals and how it differs from them. If you can't think of anything that makes this endeavor stand out, the best thing you can do is forgo it and be safe. If you identify the unique selling feature, on the other hand, you could have discovered the next low market cap jewel with great potential.

2. Participation In Community And Development
You should also keep an eye on how the Community and the Project are progressing. While not everyone has the technical ability to understand how the project's code is evolving, anybody may monitor the project's social media. Here are a few red signals you should be aware of. For example, the new project's Twitter account is many years old. Although the Twitter account was most likely updated, the bogus followers remained. Fake followers are particularly simple to recognize when none of the thousands of followers are responding to the Tweets.

3. Audits of security
Smart Contract Audits are used to guarantee that the DeFi application's code is safe and that it cannot be easily hacked. Security audits are normally fairly expensive, but legitimate projects will pay for them. That's not going to happen with shady projects.

While a Security Audit is vital, it will not be able to identify all possible security flaws that hackers may exploit. Although there is always the chance of a breach, a Security Audit is at the very least a very positive indicator that the project is not evil and has good intentions.

4. Who are the founders of the company?
Satoshi Nakamoto is still unidentified, despite the fact that he invented Bitcoin. By inventing the first cryptocurrency, he accomplished a significant feat. However, if you want to invest in their business, you should be aware that a team with unknown founders poses an extra danger.

Even though there are reputable enterprises with anonymous founders, there is still a risk aspect because there is no one to hold accountable for any fraudulent action.

However, if you discover that some of the founders are wholly phony, using photos from the internet, it is a clear evidence of nefarious behavior, and you should avoid that project.

5. Distribution of tokens
When it comes to evaluating DeFi initiatives, the final thing to consider is token economics. When the founders receive a large share of the tokens, consider what would happen if all of these tokens are sold at the same time on the market. When a whale holding something like 50% of the circulating supply sells its holdings, the price will skyrocket and lose nearly all of its worth.

Then there's the issue of token distribution to consider. Are they just given out to insiders before the social media frenzy begins? This isn't a good indication. An airdrop distribution might result in a lot of sell pressure.

On the other hand, it's a positive indicator if the tokens are issued on a Launchpad like Binance's or Biswap's, where the exchange is also putting their own reputation on the line.

Final Thoughts

I hope I was able to supply you with some useful and interesting information. Keep these considerations in mind when working with Decentralized Finance Applications, and be safe in the DeFi space.

An essay I discovered at the Binance Academy motivated me to write this post. You can read the Binance Academy article here if you're interested. There are also some more fascinating and useful articles there.

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