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Platforms You Should Join to Avoid Falling for Defi Scams

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Scammers couldn’t have found a better place to thrive. What with decentralization, the anonymity of transactions, and a lack of regulation characterizing the space? 

Despite its positives, the Defi sector is a jungle that readily swallows the unknowing. Navigating it requires heart, but more than that, tact. Identifying the snares and how to avoid them is the key to profitable investments in the sector.

2020 has witnessed a burgeoning of Defi projects offering their services and products. A good number of these are dubious, itching for an opportunity to rob you of your funds. 

How then are these fraudulent schemes perpetrated? Is there a way of identifying them? What measures can one take to protect themselves from falling victim to them? Are there platforms to guide investors in determining the genuine from fake projects? 

This article hopes to build your capacity to make informed decisions within the space by answering these questions.

How Do Scammers Carry out their Activities on Defi platforms?

Scams are as varied as there are scammers. Here are a few of their favored methods of execution.

  • Exit Scams

An exit scam is a scheme hatched by unscrupulous crypto promoters to defraud the public of their funds. They dupe investors by setting up a project with an attractive concept. After collecting funds from the ICO, the perpetrators evaporate with the funds leaving the investors in limbo. In 2020, for instance, YFDEX.Finance conned investors of $20 million in just two days of operating.

  • Pump and Dump

Pump and dump schemes involve artificially pushing the demand for a given token. A small group of whales identifies and purchases a token with low value. Their action causes the token’s prices to appreciate. This price hike draws other investors to acquire the token hoping for gain. On the price reaching a certain level, the whales dispose of their holdings at a profit. Thus, the prices plunge, leaving investors with hefty losses.

  • Admin Imitator

Using a social media platform, for instance, Twitter, Telegram, or Discord, a scammer impersonates a Defi Platform’s support team member. The scammer used credentials similar to the platform’s admin. They then ask either for private keys to resolve specific issues. Alternatively, they may require members to send ETH to a given address to complete their scam.

  • Fake Airdrops and Rewards

Airdrops and giveaways help. Defi platforms raise awareness about their platforms. Also, they increase community participation. At times scammers may provide fake Airdrops and reward to access private keys and personal info. They then use these to defraud you of your funds.

  • Defi Rug Pulls

Defi rug-pulls are con games that involve minting new tokens and publicizing them, primarily via social media. After that, the project lists on Uniswap, and owners inject liquidity. The unsuspecting investors will swap their ETH for the new token. The instigators then drain the liquidity pool. This way, they make away with the funds leaving holders with worthless coins.

  • Hardware Wallet Theft

Another scam involves selling users compromised hardware wallets. Their setup creates backdoors allowing hackers to drain one’s funds.  

How do you Identify Scam on Defi?

As the Defi sector is replete with scams, knowing how to identify them becomes an essential skill. Here are a few pointers:

  • Their Offering- Genuine projects have unique products tailored towards specific pain points, doubtful projects, on the contrary, piggyback on successful projects’ products.
  • Development- Are the developers continuously updating the code? If not, it could be a scam.
  • The founders- Are they known? What’s their reputation within the crypto space? Shady projects will have shady frontmen too.
  • Tokenomics- How is the token distributed? Scams typically inflate the token price while holding a majority of the token.
  • Language Use- If they use complex Defi jargon, it’s possibly a scam; legit projects use simple language.
  • Promised Returns- If the deal is too good to be true, think twice before committing.

5 Best Platforms to Sign Up For to Avoid DeFi Scams

The security of your funds could be a sign up away. The rise of Defi Scams has resulted in the emergence of platforms to protect users in the ecosystem. These platforms take it upon themselves to detect scams so that you don’t have to. Here’s your must sign up to platforms to avoid Defi scams

LID Protocol’s LIFTOFF

LIFTOFF is a platform that uses LID Protocol’s Certified Presales service to protect investors and projects. The service facilitates projects to raise funds. When they meet their targets, a smart contract locks the raised funds and tokens on Uniswap or other lending protocols. 

Once the presale concludes, it mints the liquidity pool tokens and burns them. Thus, it permanently locks the liquidity on the lending protocol preventing the occurrence of rug-pull scams. 

SlowMist

This China-based company is a market leader in blockchain security. Besides serving over 70 DEXs, 110 wallet providers, and 40 blockchain firms, it supports more than 800 tokens. It audits these projects’ security systems and smart contracts. 

SlowMist made headlines when it raised the alarm over an impending $2.5 million DeFi exit scam by Emerald Mine (EMD). The platform had transferred to a private account a vast chunk of tokens that users had staked.

PeckShield

PeckShield is another Chinese blockchain security company that strives to enhance blockchain security and usability. It produces cutting edge products targeting large scale systems. It reports on hidden vulnerabilities within networks. 

Additionally, it creates products and services to counter these vulnerabilities. PeckShield also flagged the Emerald Mine exit scam.

Blockchain Audit

This New York-based firm does more than build secure decentralized systems. It also audits Blockchains and reports on different projects’ states of security. Blockchain helps identify counterfeits, bullwhip effects, and fake reviews, among others. 

Again, it is a good source of information on upcoming projects and their security.

KryptoGO

KryptoGO develops advanced blockchain solutions and offers consultancy services through linking projects with experts on various issues. It also undertakes audits besides reporting on different projects. 

Hence, it’s a valuable source of information for anyone researching a project of interest.

What to do to Protect Yourself from Scams?

To protect yourself against being scammed:

  • Do your research on the project before investing
  • Seek expert opinion on the project
  • Avoid sharing your private keys and personal information
  • Only get your hard wallets from legit outlets
  • Sign up to a platform that analyses Defi projects and trends

Final Thoughts

The Defi sector crawls with nefarious schemes. Consequently, it behooves every investor to be awake to this reality. Scammers have devised different ways of actualizing their goals. As such, knowing how to identify scam projects from the rest is critical. 

Simple actions like digging into the founder’s background, examining the project’s development history and its token structure can avert huge losses. Additionally, signing up to platforms like the ones identified here will guarantee you a safe investing experience.

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