Decentralized Finance is a market that’s entirely unregulated. DeFi protocols are an alternate channel for scammers who want to make fast money. In 2021 scammers around the world took home a record of $14 billion in cryptocurrency, largely due to the rise of DeFi. It’s the wild west in the world of decentralized finance(DeFi) and DeFi scams are everywhere. At StaySAFU we are a team of blockchain engineers who want to help you secure your investments, discover safe projects, minimize your risks and avoid DeFi scams.
What is a Scam ?
Scammers want to take your money. Not to make a profit for you. No just to get rich, they do this by getting you to reveal your personal details, stealing your information, or even tricking you into willingly handing over the cash. A big problem of DeFi is that many new protocols being launched have code vulnerabilities that scammers can exploit. In 2021 DeFi transaction volume grew 912%. Losses from crypto scams climbed 82% to $7.8 billion worth of cryptocurrency.
One way to reduce the number of crypto scams in the ecosystem is to be aware of the different scams and develop good habits for each of your investments, using the right tools. Keep reading and you’ll be safe.
Biggest crypto scams
The rug pull
One of few investors or developers holds the majority supply of a given coin. Then they get to work promoting that coin and generating hype. One minute your $100 investment is worth $1,500 and before you know it, it’s worth $2.00. You just got rug-pulled.
To avoid the rug pull you should always analyze a token :
- Liquidity (how much liquidity is locked, unlocked)
- Top 5 holders (the proportion of tokens held by the largest whale)
- Mint (if there is minting functions)
After this analysis of the LP, you’ll minimize the risk to be rug-pulled.
What ? Honeypot lets coins come in but they won’t let them back out. Yes imagine you just found a nice token and you decide to invest some ETH in but ... A HoneyPot is when an attacker adds a function in the smart contract that will lock your ETH in. So how to identify a honey pot ?
- Ownership (The owner property of a smart contract)
- Blacklist (If there is a function that will exclude your address from a transaction)
- Modify Max TX (This function locks your max transaction at 0 so your fund will be locked)
- Modify Fees (If the fees are at 100% then it is impossible to sell tokens)
- Disable trading (Disable token trading)
To discover the Honeypot scam, you should first analyze the smart contract to see if there is a malicious function, secondly simulate a transaction to see if once you add ETH they are locked in.
How do you become safe in DeFi ?
To make this possible for you, it is important to ask the right questions and use the right tools. In this section, we have divided the important elements to look for in the DeFi project.
A very good way to define the quality of a project is to see if it has been audited. Today there are several players when they perform an audit thanks to their experience secure the smart contract. A smart contract audited by a specialist company with experience reduces the risk of attack.
Decentralized finance solves many flaws in existing financial systems. Among these use cases we can mention borrowing and lending services, decentralized exchanges, insurance, asset management, and other financial services. Verifying that the project is related to a real use cases will define its usefulness, its ability to create value and to survive in the long term.
Ideally, DeFi protocols should provide relevant documentation, such as a whitepaper, one-pager, guides, fee structure, frequently asked questions (FAQ), roadmap, and so on. This information is helpful to understand the project and assess its maturity and competence.
To exist, a project needs to gather a community. But not only that, throughout the project, this community must be involved, engaged. Going to meet this community via its Telegram, Discord, Twitter account is a very good way to define if it is active or not. The community reflects the quality of the project.
The success of a project depends very much on the team behind it. Find out about their objectives, plans, do they have a solid background? Some projects wish to remain anonymous, in which case you should ask yourself questions about the viability of the project.
Today however most projects have publicly verifiable teams behind them, and you can check their background to get a better picture of their potential.
It defines the supply and demand characteristics of a cryptocurrency. Tokenomics is also helpful as guidance to understand how much an asset might be worth in the future.
StaySAFU is the most advanced tool to invest in DeFi Safely. It’s for crypto investors who want to secure their investments, discover safe projects, minimize their risks and avoid DeFi scams.
To take advantage of the ressources you just read you can follow the guide in the link just below. It will take you to step by step through the operation of the scanner StaySAFU and you’ll analyze, défine if a token is safe.