Tag: DeFi investing

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Crypto Daily Topic Cryptocurrencies

DeFi Investing 101: A Complete Beginners Guide 

The crypto space is decorated with exciting projects. In the year 2020, however, none has caught the eye as much as DeFi has. DeFi is an acronym for decentralized finance, several protocols geared towards providing financial services while eliminating a central governing authority from transactions.

The crypto space is decorated with exciting projects. In the year 2020, however, none has caught the eye as much as DeFi has. DeFi is an acronym for decentralized finance, several protocols geared towards providing financial services while eliminating a central governing authority from transactions.

The crypto space is decorated with exciting projects. In the year 2020, however, none has caught the eye as much as DeFi has. DeFi is an acronym for decentralized finance, several protocols geared towards providing financial services while eliminating a central governing authority from transactions.

In the last year alone, the total value locked in DeFi funds has grown from $850 million to stand at $14.9 billion as of 15th December. This growth is indicative of the rising appetite for investments in the sector. The excitement that DeFi has created is pulsating; it almost sucks you in. Doesn’t it?

But as a newbie, should you take the plunge? What are the investment options available to you? Are there any pitfalls you should be wary of? If you’ve asked any or all of these questions and are reading this, then you’re in the right place. Today we journey through DeFi, providing a few pointers to help you along your investment journey.

Is DeFi Worth the Hype?

The kind of interest generated by DeFi speaks volumes about the sector’s potential. But what benefits does one derive from investing in the industry? The following are a few reasons why DeFi is attractive: 

  • Accessibility – DeFi products are available to anyone whenever they may be; with an internet connection, one is good to go.
  • Autonomy – through the elimination of central authorities, DeFi gives the users control over their financial activity.
  • Transparency – all transactions take place over the Ethereum blockchain enabling their public scrutiny before verification.
  • Higher returns- because of the attendant risk, the DeFi sector offers higher ROIs than legacy financial institutions.
  • Increased liquidity of illiquid assets- tokenization enables the representation of previously illiquid assets on the Blockchain enabling their easy transference.
  • Faster transactions – DeFi platforms allow for real-time P2P transactions saving time.
  • Affordable – DeFi platforms eliminate intermediaries from fees cutting transaction costs significantly
  • Borderless- DeFi allows seamless Cross-border transactions anytime, any day

What are The DeFi Investment Options Available to a Beginner?

The DeFi Sector replicates the functions of the traditional financial systems in a decentralized manner. Scanning through the sector reveals rich products for the interested investor. To the newbie, investing within the space need not be a chore. Here are a few easy pickings to set you off on your investment journey:

Decentralized Lending and Borrowing

Open lending protocols dot the DeFi landscape. These allow users with extra liquidity to loan it out to others in need of it. It works in similar ways to conventional lending. The only point of departure is that DeFi lending eliminates central authorities and intermediaries from the transactions.

Providing Credit through Smart Contracts and DApps

Smart contracts and DApps enable P2P interactions between lenders and borrowers. These tools spell out the terms of credit and repayment. Once the borrower complies with them, the platform automatically disburses the funds to their wallets. 

Collateralization is Key

They, however, have to provide collateral in the form of tokens. If they default on their obligations, they cede ownership of the tokenized asset to the lender.

Yield Farming

Yield farming is also liquidity mining. It is the provision of liquidity to a Decentralized Exchange (DEX) for a reward. At the center of yield, farming are liquidity pools, which are pools of tokens governed by a smart contract. They facilitate transactions over a DEX by providing the required capital. These rewards create extra income streams for the investor.

Rewarding Contribution

Investors who contribute to liquidity pools are known as liquidity providers (LPs). They can draw profit in two ways. First, they get token rewards for funding the pool. The rewards are an incentive to keep their funds within it. These rewards help to build up one’s total holding within an ecosystem.

Decentralizing Governance

Additionally, protocols may reward their investors with governance tokens. These tokens are essential in ensuring that the platform decentralizes fully. Developers may issue the tokens in several ways:

  • Through listing 
  • Distributing a share of the tokens to their founding community members before listing
  • Rewarding LPs with governance tokens besides the yield rates

Distribution of Fees

Secondly, the liquidity providers share fees that their pool attracts. DEXs mostly use the Automatic Market Maker(AMM) approach. AMMs allow P2P token trades within the liquidity pool Users pay fees- for instance, it is 0.3% of the transaction value on Uniswap– to complete their transactions. The AMM collects all the fees and distributes them to the LPs as a reward. 

Trading Over a DEX

The Decentralized Exchange (DEX) is an essential cog for the running of the DeFi protocols. They enable P2P transactions occurring in the space. There are different trading and, therefore, investment strategies one may adopt. Here we focus on a couple:

Margin Trading

Margin trading involves trading a financial asset using credit obtained from an AMM. The financial assets provide the collateral for the loan taken. After trading, they pay back the loan plus fees and keep the difference as profit. In case of a loss, the protocol will deduct the loan and expenses first. One should therefore exercise caution trading this way as they could lose the collateral.

Synthetic Assets

Synthetic assets are token representations of derivatives. These assets allow the tokenization of real-life assets, for example, property hence their trading on the Blockchain. Without them(synthetic assets), they would remain illiquid. 

No-Loss Games and Lotteries

Among DeFi s wide gamut of attractive services are games and lotteries. A good example is the PoolTogether game. It’s some risk-free lottery. Here investors put their funds in a shared pot. One participant wins the profit accruing, while the rest get their funds back.

Should I be Concerned About My Investing in DeFi?

Despite its attractiveness, the DeFi sector is still in its infancy. As such, it is essential to approach investments within it cautiously. Let us now shift our attention to a few concerns besetting the sector.

  • Price fluctuations – the cryptosphere as a whole is very volatile; the value of tokens and coins can spectacularly appreciate and depreciate in equal measure resulting in untold losses.
  • Scalability issues – Even with the implementation of Ethereum 2.0, there’s lingering skepticism that the sector can handle bulk transactions at a go.
  • Smart contract vulnerabilities – hackers have on occasions exploited vulnerabilities in some smart contracts to steal from DEXs.
  • Lower liquidity compared to the traditional financial systems – even though the sector shows so much promise, its TVL pales compared to the liquidity held by mainstream finance globally.
  • Over- collateralization of credit – borrowers have to stake an asset of higher value than the loans they qualify for

Stick To The Following, and You’ll Be Fine

By now, you’re getting the hang of DeFi investments. Now let’s look at some of the best practices to guarantee you a fulfilling investment journey:

i) Be Thorough in Your Research

Don’t take anyone’s word blindly. It’s good to listen to others but folks that up with your research about the market. This way, you can determine if any token is worth the time and money. It’s critical to examine:

  • The token distribution,
  • The team behind the project, 
  • The word on the street concerning the project
  • Partnerships the project has drawn
  • Its roadmap to implementation

The above scrutiny enables you to understand how trustworthy the project is.

ii) Spot the Opportunities

After verifying the project’s authenticity, the next step is to determine the most profitable tokens. Participating in the initial funding rounds enables you to acquire tokens affordably, enhancing your chance to turn positive returns.

Again it is essential to look at projects launching under unique funding models. Traditionally, such projects have generated a handsome profit for investors.

iii) Manage Your Risk 

After identifying the ideal project, now comes the actual investing. You then proceed to find an exchange that supports the trading pair that interests you.

Proceed to place your order and set your desired stop loss value. Consider initiating a trailing stop order. You can use it to maintain the stop loss as the asset appreciates.

Final Thoughts

The DeFi sector continues to grow, buoyed by the rising demand for its products. This growth comes with many different opportunities for any crypto enthusiasts. Compared to traditional financial systems, DeFi offers convenience, practicality, and affordable transactions. 

Additionally, it provides better ROIs than conventional financial systems. It’s easy to see why they could take any beginner’s fancy. That said, you should exercise prudence in your investment choices as they impact your venture’s profitability.

This article has traversed investments in the DeFi sector. It arms any newbie with the fundamentals that, if adhered to, will make their foray into DeFi a fulfilling one.

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Crypto Daily Topic

How to Spot Scams in Decentralized Finance 

If you have been in the crypto industry for more than a minute, you’ve probably heard about decentralized finance (DeFi). It is one of the fastest-growing sectors in the crypto scene, having registered an 1116% increase this year. DeFi grew tremendously, increasing from $674 million in January to $14.185 billion today.

If you have been in the crypto industry for more than a minute, you’ve probably heard about decentralized finance (DeFi). It is one of the fastest-growing sectors in the crypto scene, having registered an 1116% increase this year. DeFi grew tremendously, increasing from $674 million in January to $14.185 billion today.

If you have been in the crypto industry for more than a minute, you’ve probably heard about decentralized finance (DeFi). It is one of the fastest-growing sectors in the crypto scene, having registered an 1116% increase this year. DeFi grew tremendously, increasing from $674 million in January to $14.185 billion today.

However, the impressive growth also comes with a drawback; DeFi scam projects. 

Thanks to FOMO, scammers are jumping on board the DeFi craze. Blockchain’s properties of being permissionless and decentralized make it easy for anyone to launch fraudulent scams. Scam cases have been so prevalent that prominent entrepreneurs, such as Craig Wright, write off DeFi completely. 

The truth is that not all projects are fake. So, how do you separate the wheat from the chaff? 

More on that later, but first, let’s have a look at the common DeFi scams you should be aware of. 

Common Types of DeFi Scams

Although criminals will come up with all kinds of DeFi scams, they most likely will fall under any of these four categories. 

i) Exit Scams

Exit scams are perhaps the most widespread DeFi scams around. In this case, developers announce a project’s launch and stir the crypto scene with details of the project. Once they have people talking about the project, the criminals disappear with all the funds locked in the protocol. 

Exit scams are usually hard to trace, thanks to the decentralized nature of blockchain. However, in an isolated incident, the world’s largest crypto exchange, Binance, announced in November that it had recovered 99% of the funds stolen from the platform through an exit scam. 

ii)Pump and Dump

Pump and dump schemes are no stranger to the financial world. These schemes are typical in the stock world and are used to boost stock prices on false statements. Crypto pump and dump schemes work similarly. Investors who are in on the scheme start by creating a buzz around a particular DeFi token. They increase the coin’s awareness on different social media channels, which results in a price increase. More unsuspecting investors get on board and buy the tokens, which further increases its price. 

Once the group reaches its target, the initial investors start selling their tokens. The massive sale of the tokens causes a dip in the prices. While the initial investors make a profit, those unconnected to the scam deal with significant losses. 

iii) Admin Imitator

Most of these scams happen on social media platforms such as Twitter, Telegram, and Discord. Usually, DeFi developers use this platform to form a community around their projects. 

Scammers use these platforms to target unsuspecting investors. They pose as one of the members of the support team and convince investors by using the same image and usernames as legitimate members of the development team. 

The scammers then pretend there’s an issue with the project and inform users of the same. They ask the users to send ETH to a specific address or send their private keys to solve the issue. 

iv) Discord Bot Scam

This is a relatively new tactic that scammers are using. The criminals create a bot representative of the DeFi project, which they use to send updates, news, and features updates via a link. Users who click on the link are then redirected to a compromised version of the DeFi platform. These bot scams usually end up in numerous phishing attacks on the users. 

5 Questions You Should Ask to Identify a DeFi Scam

So, how do you tell a legitimate DeFi project from a scam?

Before you invest your money, you need to ensure the project is viable. Finding the answer to these five questions will help you identify a DeFi scam from miles away. 

What’s the Project’s Purpose?

It may seem like an obvious question, especially for an investor who’s new to the crypto scene. However, taking a keen look at the project’s purpose can help you avoid hefty losses. 

DeFi projects are supposed to be innovative, and the legitimate ones usually are. However, most of the upcoming projects have nothing to offer and are only riding on the ongoing craze. 

Before committing your money, have a clear idea of what the project is all about. Does it bring anything new to the crypto scene? Is it an innovative solution? How different is it from its competitors?

Is There a Smart Contract Audit?

Project audits are a common feature in the DeFi space. For smart contracts, audits are an essential part of the development and help to ensure the project’s code is secure. 

Despite it being a requirement for developers to deploy their code with an audit, most don’t adhere to this. The audits are quite expensive, so scammers won’t bother incurring the additional costs. 

Sure, an audit report for a DeFi project doesn’t mean the platform is entirely safe and shouldn’t be a decisive benchmark for the ideal project. However, it’s an excellent indicator to help you weed out scam projects.  

Who Are The Founders?

Most investors don’t give a second thought about the founders, but it helps to have some information on them. 

Anonymity in the crypto space is not new; after all, it is one of the pillars of blockchain technology. Therefore, it’s not unusual to come across DeFi projects whose founders choose to remain anonymous. 

So, are all DeFi projects run by anonymous founders a scam? Not at all. However, if the founders are anonymous, they cannot be held accountable in case anything goes wrong. So, you can always go for a project with unknown founders, but you run the risk of losing everything and having no one to go after if you lose your money. 

Is There Any Developmental Activity?

One of the best features of DeFi is that most of the platforms are open-source. This means that the development team avails the code to the public so that anyone can make changes to it. Therefore, if you have any code-knowledge, you can always check out the source code to identify any malicious activity. 

The best part about open-source DeFi projects is that if they raise enough interest, more people get on board. You, therefore, have more people checking out the source code for any bugs; thus,  increasing the chances of spotting anything off. 

You should also check the developer’s activity. Are they often deploying new codes? It may not be enough to spot a fake, but a project with zero developer activity should undoubtedly raise some eyebrows. 

How is the Token Distribution?

When finding out more about a DeFi project, you should always pay keen attention to its tokenomics. For starters, find out more about the token’s allocation. 

As expected, the founders will probably hold the lion’s share for themselves. However, this could end up being a problem if the developers are scammers. They can easily hike the token’s prices and later dump their coins in the market, causing the token to lose its value. 

Additionally, the distribution model used is essential. An exclusive presale will mean that only a select few will acquire the tokens at first and cause hype around the project on social media. Airdrops are likely to cause a sell-pressure, while IEOs are more reliable since crypto exchanges put their reputation on the line. 

Do Your Own Research!

Figuring out whether a DeFi project is about to dupe, you can be an uphill task- yet, it’s quite necessary. After all, no one wants to lose their hard-earned money. 

Although these five crucial questions will give you a headstart, they aren’t conclusive. Before placing your money in a sinking ship, do your own research and learn all you can about the project. Not all DeFi projects are a scam, and if you get a legitimate one, it could end up being a worthy investment with massive profits.

Categories
Crypto Daily Topic Cryptocurrencies

Read This Before Investing in a DeFi Project

Decentralized Finance (DeFi) is a system of financial applications that are powered by smart contracts. Defi has exploded in popularity because of its unprecedented features on cryptographic security, fraud-free transactions, and autonomy. Whether it’s investing, loans, insurance, banking, lending, and staking, pretty much every financial offering exists in DeFi. 

Decentralized Finance (DeFi) is a system of financial applications that are powered by smart contracts. Defi has exploded in popularity because of its unprecedented features on cryptographic security, fraud-free transactions, and autonomy. Whether it’s investing, loans, insurance, banking, lending, and staking, pretty much every financial offering exists in DeFi. 

Decentralized Finance (DeFi) is a system of financial applications that are powered by smart contracts. Defi has exploded in popularity because of its unprecedented features on cryptographic security, fraud-free transactions, and autonomy. Whether it’s investing, loans, insurance, banking, lending, and staking, pretty much every financial offering exists in DeFi. 

The space’s dramatic growth has led many investors rushing in to get a slice of the DeFi pie. But just like with crypto investing, you can gain some handsome profits, but you can also incur devastating losses, especially if you’re not careful. 

This article will guide you in what you need to do before dipping your feet in the DeFi investment waters. But before that, let’s look at what investing in DeFi entails. 

DeFi Investing: The Basics 

There isn’t much difference in the investment opportunities offered in the traditional financial setup and Defi. Decentralized lending, for instance, follows the same principle as lending in centralized finance systems, except this time, smart contracts are involved, and the returns are invariably better. Smart contracts are used to hold collateral from borrowers and also automatically deliver accrued interest to lenders. There’s also ‘staking.’ Staking in DeFi is when you lock up your crypto and get the right to participate in a network and, in some cases, earn rewards for depositing your crypto. 

We also have ‘yield farming’ in DeFi. Introduced by Synthetix and popularized by Compound, yield farming involves locking up your crypto assets in a project’s protocol and earning rewards. 

Defi investors use their insight to spot lucrative opportunities, just like traditional finance investors capitalize their knowledge on assets such as real estate.

With that, let’s get straight to:

What you need to do before investing in DeFi. 

#1. Carry out extensive research

Before you invest your hard-earned money in a Defi project, it helps to do your research. To verify whether a project is legit, head to Google, and type the project’s name followed by the word “scam.” If this project is a scam, someone else might have already flagged it.

You might have typed the name of the project alongside the term “scam,” and nothing has popped up. This does not mean that the project is completely legitimate. You can use Defi tokens and protocols, which anyone can view since the project is open-source. If you can, evaluate the project’s codes to see if the project is genuine. This method particularly helps if you have programming skills or know your way around smart contracts. 

#2 Observe the number of users and what they are saying

The more the users on a blockchain project, the more the value. With blockchain projects (mostly those on Ethereum where several Defi projects are built), there is real-time reporting. This can be done through Etherscan.io, which is for raw data, or Dune Analytics, which focuses on user-friendly reports. With these tools, you can look at the total users in a given Defi project coupled with the increasing number of users. The goal is to see real people using these protocols. Keep in mind that some of the data you see can also be corrupted as an elaborate ploy to lure in unsuspecting users. These accounts should belong to quality users, and their growth should be quadratic. If you observe such users utilizing the protocol, then it’s genuine.

Also, be keen on what trusted security professionals are saying and writing about these projects. Defi projects typically subject their smart contracts to manual security audits with an air-tight reputation. Some of them include Certik, Quantstamp, and OpenZeppelin.

You can also check what people on Twitter, Reddit, and DeFi-related sites and forums say about the project. You can also check whether the project is recognized by Defi Prime, Defi Pulse, and Defi Market Cap. 

#3. Verification by Etherscan

Once a project has verified their smart contracts on Etherscan, a unique code will be availed. When viewing the contract, the code you see is the same code you ought to get when using it. Of course, this does not mean that your project is invulnerable to hacks or it’s not a scam. Still, having a code that can be publicly assessed without the fear of the code being changed is vital.

ETHProtect is a service provided by Etherscan that enables people to report suspicious activities on the Ethereum blockchain. A “Red Shield,” issued by Etherscan’s security analysts and the Taint Inference Analysis Engine, is something to watch out for when looking at Defi projects. These usually mean that people have launched a complaint against a certain project. When you see a Red Shield attached to a project, know that it’s been identified as a scam. 

#4. Watch out for fake projects

Many fraudsters are ahead in the game – they create fake projects with legit-sounding names. But when you look more closely, you’ll find that the project’s links are either dead or lead to nowhere. Or it may have a website, but it looks all spammy, like requiring people to sign up for freebies – and other suspicious activities. 

You can also know if a project is legit by checking what exchanges its tokens are listed on. It’s almost impossible to find a scam project listed on reputable exchanges like Coinbase, Binance, Huobi, etc. Instead, fake projects are listed on decentralized exchanges or little-known centralized exchanges. 

Closing Thoughts 

Investing in DeFi can be lucrative, but watch out for the loopholes. The crypto space is full of scammers looking to make a quick buck at the expense of unsuspecting users. Luckily, there are ways to identify a fake DeFi project way before you can be duped to invest in one. Also, you can always analyze a project’s code for the tech-savvy investors and determine if it’s legit. Also, don’t forget the first rule of crypto investing: don’t put in more money than you can afford to lose!

Categories
Crypto Daily Topic Cryptocurrencies

A Guide to DeFi Investing

DeFi. The newest buzzword in blockchain and crypto. What is it, and why should you pay attention? You should because it’s an exciting new way to interact with and make money out of crypto if you play your cards right.  The crypto world has been taken by DeFi because it represents a bold new departure […]

DeFi. The newest buzzword in blockchain and crypto. What is it, and why should you pay attention? You should because it’s an exciting new way to interact with and make money out of crypto if you play your cards right.  The crypto world has been taken by DeFi because it represents a bold new departure […]

DeFi. The newest buzzword in blockchain and crypto. What is it, and why should you pay attention? You should because it’s an exciting new way to interact with and make money out of crypto if you play your cards right. 

The crypto world has been taken by DeFi because it represents a bold new departure from the world of centralized finance. It also has perks, like instantaneous transactions and anonymity. Bain Capital Ventures partner Salil Deshpande believes DeFi has caught on fire because people have in them “a libertarian streak.” 

But what does DeFi investing entail and what should you know before you join the bandwagon? 

What Does it Mean to Invest in DeFi?

Still an entirely new field, many people may be at a loss at what it actually means to invest in DeFi. You probably hear terms like ‘staking’ and ‘decentralized lending’ being thrown around, or wonder what type cryptocurrencies make the rounds in the world of DeFi. If that’s you, we’ve got you covered. Below, we’ll cover the basics of investing in DeFi and then examine the do’s and don’t’s of the same. Remember DeFi is based on crypto, and so the inherent risks haven’t gone anywhere. 

DeFi Investment Opportunities

Now, investment in DeFi isn’t a lot different from traditional investment, but a few unique aspects make it stand out. 

For instance, traditional lending involves the lender giving money to the borrower – with them (the borrower) making the promise to return the money with interest.  

This is how decentralized lending works as well, except this time, blockchain-based smart contracts lock in collateral from the borrower and automatically delivers interest to the lender periodically according to the terms of the contract. 

Then there’s staking. In traditional finance, individuals usually deposit money to institutions such as banks and credit unions and these institutions use this money to maintain liquidity and sufficient cash reserves. In DeFi, this process of buying and depositing digital assets into a platform’s account is known as staking. Such platforms need the funds to lend out to other users (borrowers), and to help maintain and secure the network.

The Do’s of Depositing in DeFi

DeFi Investing can be incredibly lucrative, but you can also potentially lose everything especially if you go in blindly. Here’s what you should definitely do before putting your money up.

#1. Do Your Own Research (DYOR)

The decentralized finance world is rife with scams and frauds. Scammers usually take advantage of the novelty of the tech to rip off unsuspecting investors. But that doesn’t mean there’s no way you can identify a scam. 

The quickest way to do so is to type the name of the project on Google along with the word ‘scam.’ The reason for this? If the project is a scam, chances are other people have already pointed that out. Whether it’s on cryptocurrency forums, Reddit, Twitter, or even Quora, it’s most likely certain the thought has been floated. And often in crypto, if it walks like a duck…

Also, DeFi protocols are based on open-source code. That means anyone can check ‘under the hood’ and identify anything that’s off. If you’re a programmer who’s familiar with smart contracts, then you can definitely examine the assemblage of what’s underneath. 

#2. Look at Reviews 

This is another way to establish the credibility of a DeFi project, and it involves looking at what other people are saying. This starts by looking at audit reports. Any DeFi project worth its salt will invite industry auditors such as ChainSecurity, Quantstamp, Trail of Bits OpenZeppelin, e.t.c. to conduct a manual audit of the project. 

The next thing to check out is what everyone else is saying, including the developers themselves, on their website and other forums. Look at the project’s social media handles and see the comments on posts. And if a project is lacking a social media presence, that right there is a big flashing red sign. 

Other helpful places to look at websites that cover the world of DeFi: DeFi Prime, DeFi Pulse, and DeFi Market Cap. These websites can provide valuable insight into a project’s cred. The key here is to rely more on independent sources, rather than on info touted by the project’s team. 

#3. Check Etherscan

EtherScan is a blockchain explorer that allows you to explore Ethereum blockchain and ‘scan’ for transactions, prices, tokens, and pretty much all activity happening on Ethereum. Remember that just because a smart contract/token is verified by Etherscan doesn’t mean it has no vulnerabilities or is not a scam. It means that the contract is available for public evaluation and is not in danger of being dishonestly altered. In other words, the code that you see (and have examined) is the code that you get when using the smart contract. 

Besides, Etherscan has recently implemented Every Transaction Hash Protect (ETHProtect), a service through which users can report any suspicious or fraudulent activity on Ethereum. Through ETHProtect, it’s easier for users to recognize tainted incoming funds, and the system can usually trace such funds to the origin. Usually, tainted funds would originate from phishing, hacks, scams, exploits and suspicions, and fraudulent activities. 

Such reports will be analyzed by the in-built Taint Inference Analysis Engine, and if confirmed to be indeed fraudulent, the address page will receive a flashing ‘Red Shield’ icon that allows users to avoid the sources of such funds. 

If you start coming across tainted addresses when investigating a smart contract, then you know there’s a problem. As such, avoid going to the project’s website or interacting with their products. 

#4. Look out For Fakes 

The majority of DeFi tokens use Ethereum-based tokens to carry out their operations. However, an unsuspecting newcomer might not be able to check the difference between a legit token and a fake one. Scammers will usually create a project with a genuine-sounding name such as DeFi token or DeFi coin. A name like that would likely raise eyebrows in an experienced investor, since ‘DeFi’ is a general word, and it’s unlikely for any project to brand themselves as such. But what would a newcomer know? 

A few simple steps may be all it takes to establish whether it’s a legit thing or not. Search the project on GitHub and see whether there are any meaningful discussions surrounding the project. Also, where do the project’s links lead to? If it’s a dead link, then that should have you scurrying in the opposite direction. Another way to tell a token’s standing is to check the kind of exchanges it’s listed on. If a token is listed on a few nondescript exchanges, that’s a red alert. Also, fake tokens will usually be listed on decentralized exchanges because there’s no regulation going on there. Stay on the lookout for these kinds of things. 

The Don’t’s

Now that we have examined what you should definitely do, let’s take a look at what you shouldn’t. 

#1. Don’t Invest Money that You Can’t Afford to Lose

This is the number one commandment of crypto and DeFi investing. The ‘why’ is obvious: crypto markets are highly volatile. You can gain or lose massively within an hour. The hype and allure surrounding DeFi protocols can trick you into thinking it’s all rains of cash, rainbows, and unicorns. 

This isn’t to scare you off from investing in DeFi. DeFi can be a great way to multiply your portfolio and secure your financial future. But you need to proceed with caution, that’s all. 

#2. Don’t Be Careless

Decentralized finance is all about being your own bank. This has several implications. One of these? The security and safety of your funds are solely on you. And since you are in total control of your assets, you need to protect them every way you can. 

This starts with choosing the wallet carefully where to store your funds. Choose a reputable wallet. Reputable wallets are those with good reviews on crypto and social forums. Also, check what reputable review sites (even YouTube videos) have said about the wallet. 

It also helps to know the types of wallets. There are two main types of wallets: software and hardware wallets. Software wallets are exclusively based online. Due to this, they are highly susceptible to online vulnerabilities such as hacking, phishing, social engineering, and malware. Hardware wallets are offline-based and constitute what’s known as cold storage. Without question, hardware wallets are safer since they can’t be hacked. Some great options include KeepKey, Ledger Nano, and Trezor. 

Also, where you buy your wallet matters. Always buy your wallet directly from the manufacturer’s web page. Wallets listed on online stores such as Amazon could very likely be fake. 

Final Thoughts

So, there. Welcome to the exciting world of DeFi. Following these guidelines could make the difference between you profiting from the field, as it should be, and you falling for a scam. Always do your due diligence before you put your money somewhere. Good luck!