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One of the main components of crypto is decentralized finance (DeFi). It's innovative, permissionless, and one step closer into the future of finance. No one needs permission to use these blockchains, develop them, or launch projects on them. Typically, we praise DeFi for these aspects, but there are great negative aspects to these as well if you aren't careful. New DeFi projects appear to be launching every minute of each new day... some are actual projects and most are just straight up scams.
Anyone can launch these misleading projects and, with DeFi, there's nothing to stop them. Not all projects are out to get you but, with the growing amount of token launches on DeFi platforms lately, it's hard to tell which ones are legitimate. The crypto community can come together and help each other identify certain patterns these scam-artists use and avoid these waste-of-time investments moving forward.
Let's take a look at what we should all be looking out for when making the next leap in crypto investing... before it's too late and your money is gone forever.
I am not sponsored by anyone or anything mentioned in this article.
This is not financial advice. I am not a financial advisor.
Please do your own research before making any decisions before investing.
This article is meant for educational purposes only.
New token!
Only 3 days old!
LP locked/burned!
Ownership renounced!
Join our Telegram group!
SHILL SHILL SHILL!
TO THE MOON!
*insert stupid emojis here*
Look familiar? If you're researching a token like this, quit wasting your time and utilize your research time with something of value. These new crypto "assets" do not bring anything new to the table and they have no true value to them whatsoever. A good majority of the time, these crypto projects just piggyback on the attention of DeFi and don't do anything to further innovation. All these tokens do is try to develop a sense of community to encourage people to buy, buy, buy. When the community buys, whoever is leading the project will sell, sell, sell their liquidity pool, leaving their "trusting community" in the dust with millions, billions, or even trillions of worthless tokens. This is common sense with any investment whether it be crypto or traditional... it just doesn't make sense to invest in anything that has no real future or value.
Development of the token is a good thing to watch out for as well. The good thing about DeFi and crypto as a whole is that it's trustless. This means that participants involved do not need to know or trust each other for the system to function. This typically coincides with projects being open-source, allowing anyone to view the code attached to the project for verification. If you're versed in coding, you can take a look at the code for yourself to keep an eye out for any malicious intentions. You can also use the code to see if the developers are continuing their project or shipping new code. This can help guide your decision whether or not the developers are legitimate or if they are malicious and trying to make some quick cash off of you and everyone else involved.
Auditing can help play a role in determining whether or not the coding is secure, but this is not always the case. Many developers will deploy their codes without any outside audits, as they are expensive and irrelevant to the scammer. This can greatly increase the risk of participating in a start-up DeFi token. Just because a project claims to have been audited by a third-party source, protection is not guaranteed. Taking a closer look at who is actually performing these audits will help you determine which projects are more secure and which aren't... always to be taken with a grain of salt.
Who's on the team? Development teams for these DeFi projects wish to remain anonymous? This is a major red flag. Sure, we all know the name Satoshi Nakamoto but are unsure as to who this truly is. Let Satoshi be the outlier. These new developers will piggyback off the idea of the founder of Bitcoin being anonymous and try to ride the same wave. Not all projects with anonymous founders are necessarily malicious, but it sure does make the developers less-likely to be traced in the event of a rug-pull. Taking this into consideration will help you immensely before wasting your cash when you were high on hopium.
Exit scam? Most likely! Yield farming is the new popular way to launch DeFi tokens on different platforms. Projects will use this distribution method to create some favorable distribution metrics for the project. Users will lock their funds into smart contracts and, in return, get a portion of newly minted tokens in return. Briefly mentioned above, the project founder will blatantly relinquish the funds from the liquidity pool. If the project's team is providing a good portion of liquidity for the market pair on the automated market makers (AMM - Uniswap, Sushiswap, PancakeSwap), they can easily remove it and dump the tokens into the market. Typically, this results in the token becoming essentially worthless without a market left to sell the remaining tokens for other holders. This is the traditional rug-pull.
DeFi scams are abundant and promise high returns in short periods of time. This is devastating to the investor and instills a bad name with crypto. Those who have been involved in crypto for quite some time can easily determine whether or not new projects will turn out to be malicious to the consumer. Since there aren't really any regulations regarding crypto at the time of writing this article, most of these individuals will run off with investor money and not face any legal consequences. This disgusting method of taking advantage of new and old investors has been spreading like wildfire. I hope this article allows you to take a step back and take a closer look into these projects and gives you a sense of confidence before investing. Hopefully, you can make the right decisions with your money and avoid these scams at all costs!
Have you fallen victim to a DeFi scam?
Let us know in the comments down below!
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