Stay Safe in DeFi Space - Avoid Scams In Decentralized Finance

Stay Safe in DeFi Space - Avoid Scams In Decentralized Finance


Decentralized Finance is permissionless which gives us not only freedom but also risks. As no one need to ask for permission to participate in Decentralized Finance, anyone can participate, not only legit users but also scammers and scammers never rest.

The best way to keep you safe in crypto is not only knowledge in the first place but also a strong community that keeps each other safe.

 

Pishing Websites

There are already some well-established players in the DeFi space like PancakeSwap Finance or Biswap on the Binance Smart Chain. Using such well-established platforms can be considered a safe bet compared to newly created platforms.

However, you also have to pay attention when you use these well-known DeFi platforms because with their success evil twins are plopping up on the internet. What I am talking about are pishing websites that look exactly like the originals. The URL is also almost very similar to the real one. 

You always need to make sure that you are using the real website and not a malicious fake website that can compromise your connected wallet. The best way to do this is bookmarking the real websites on your browser and then you only enter these websites from the bookmarks in your browser.

If you follow the links on CoinGecko or CoinMarketCap, you can be sure that you entered the legit official website. What you should never do on the other hand is to follow any links from emails as this could have been a malicious spam email.

 

Evaluating New Projects

It is always beneficial to be one of the first users of new DeFi products as the rewards are usually higher at the beginning and get smaller over time as more users are joining. On the other hand, it is also much riskier than using a well-established DeFi player because you do not know if the new project is 100% legit or not. You have to #DYOR very carefully to evaluate the legitimacy of the new project.

There are you few things to look out for when you are doing your own research.

 

1. Unique Selling Point

The first and probably most important thing that you should ask yourself is this: Is this project just a cheap clone of an established project or does this project bring real innovation to the DeFi space. With this question, you can also weed out many crappy projects. Try to figure out if the project you are evaluating has any competitors and how does it differ from them. If you can't find anything that is making this project unique, the best thing that you can do is just skip it and stay on the safe side. On the other hand, if you find the unique selling point, you might also have found the next low market cap gem with huge potential.

 

2. Community And Development Activity

You should also monitor how the Community and the Project itself are developing. While not everyone has coding skills to see how the code of the project is developing, anyone can check the social media from the project. Here are some red flags that are quite easy to spot. For example, the Twitter for the new project is already some years old. The Twitter account has probably been refreshed but the fake followers remained. Fake followers are also quite easy to spot when none of the thousands of followers are actually interacting with the Tweets.

 

3. Security Audits

The purpose of Smart Contract Audits is to ensure that the code of the DeFi application is secure and that the code can't be hacked easily. These audits are usually quite expensive but legit projects will pay that money for Security Audits. Scammy projects won't do that. 

While a Security Audit is necessary, it can exclude all possible gaps that hackers could use. A certain risk of a hack always remains but a Security Audit is at least a very good sign that the project is not malicious and has legitimate intentions.

 

4. Who are the founders?

Satoshi Nakamoto still remains anonymous and still, he came up with Bitcoin. He did something great by creating the very first cryptocurrency ever. Nevertheless, a team with anonymous founders is bringing an additional risk that you should consider if you are planning to invest in their project.

Even though there are legitimate projects with anonymous founders out there, it remains a factor of risk as there is absolutely no one to be held accountable for any scammy behavior. 

However, if you find out that there are founders who are completely fake with random pictures taken from the internet, then it is a sure sign of malicious behavior and you should stay away from that project.

 

5. Token distribution

The final crucial question when it comes to evaluations DeFi projects is analyzing token economics. When a huge percentage of the tokens is allocated to the founders then ask yourself what will happen if all these tokens get sold on the market at once. When a whale that holds something like 50% of the circulating supply drops its holding the price will inflate massively and lose almost all its value.

Then you could also consider the distribution of the tokens. Are they distributed just to insiders before the social media hype starts? Well, this is a bad sign. A distribution through an airdrop can create a lot of sell pressure.

On the other hand, if the tokens are distributed on a Launchpad like the ones from Binance or Biswap where also the exchange puts their own reputation at risk, then it is a good sign.

 

My Final Words

I hope I could provide you with some interesting and useful information. Keep these things in mind when interacting with Decentralized Finance Applications and Stay safe in DeFi Space.

My post was inspired by an article that I found at the Binance Academy. If you like you can check out the article from Binance Academy here. There you will also find some more interesting and helpful articles.

Binance Academy - Spot Scams

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You may also like: Avoid Common Scams On Telegram By Knowing And Understanding Them

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