By Nathan Ferguson
It is quite the fame that DeFi projects have acquired, especially after the crypto industry has grown dramatically since the year 2020. The crypto markets have an estimated market capitalization of $34.86 billion, meaning that over 1000 DeFi tokens are currently floating around. In addition, according to DeFi Pulse, the market share of DeFi protocols is estimated to be 18.06%, with a total value of $25.47 billion.
There are a variety of tokens here that cover many different aspects of these markets, such as lending, exchanges, derivatives markets, payments, and assets, to name a few. Investors have an array of different options from which to choose, opening up additional opportunities to put their capital to good use. The sector has become an incredibly profitable part of DeFi by engaging in yield farming. The potential of this sector has been unimaginable.
Some entities’ swindling methods have lowered investors’ confidence in such initiatives. Unfortunately, there are no solid guidelines in most regions worldwide, as this provides scammers with a loophole to exploit to carry on their criminal activities.
DeFi Scams
People in the decentralised finance sector might expect to be safe from scams launched against investors if they are professionals within the industry. Despite this, both experienced in the game and novices may fall for these tricks. On top of that, it is unavoidable that there is a constant rise in the number of DeFi projects entering the market, resulting in a high amount of scams that circulate in the market. If this is the case, there are some situations that most investors fall victim to within the DeFi space that are relatively common scams you should be aware of:
Exit Scams
Rug pulls
- Exit Scams
Generally speaking, most ICOs administer an ICO to raise money to finance their upcoming projects. This is because investors are investing their money with the expectation of earning a substantial profit. It is not uncommon for promoters to launch a DeFi project to entice investors into contributing by purchasing tokens, in other words, an exit scam. Nevertheless, many of them withdraw their investments during the public offering, leaving an unsatisfied group of investors. It is not uncommon for the organization to occasionally run the project for a brief period to increase its credibility and status.
- Rug Pulls
Decentralized autonomous exchanges include rug pulls, making it possible for any project to launch and sell tokens on their platform. This scam involves a new project promoting its potential on the market while encouraging users to buy tickets at a low price and then giving them away at a throwaway price. Initially, large amounts of tickets are purchased by early investors to attract more investors.
The DeFi Token has increased liquidity since more investors are purchasing it as they are looking to earn a large amount of money from a promising project. Eventually, investors pull out of the project due to the price increase once the project gets popular. The result is that most of those who contributed afterward become victims.
Those are the two most common scams that almost every DeFi and yield farming investor will have to deal with at some point in their investing journey. Furthermore, there are other means of scamming, such as opening fake presales, phishing, and misrepresenting the DeFi protocol. Investors had regrets about investing in the projects like SushiSwap, Ether Shrimp Farm, YFDexF.Finance, among others, caused investors to regret their decisions.
Uniswap Scams
Many cryptocurrency users have been engaged in Uniswap scams relatively recently. The uniswap exchange based on the Ethereum blockchain will offer every project an opportunity to be heard by every member of the world. Even so, it continues to be one of the most misused platforms in the Defi sphere, with more and more entities espousing its name and blatantly using its services. In the year 2020, Google discovered that a number of platforms masquerading as Uniswap were exploiting unknowing users.
Although Uniswap is known worldwide as one of the most trusted DeFi sites, fraudsters have found a way to make money by scamming people by using the site’s name. The crypto community needs to be alert to the incidents that have taken place in the DeFi sector and, more broadly, in the crypto sector. A second way to ensure that you do not throw your money into fraudulent schemes of fund theft is to look out for warning signs.
How Scammers Operate on Uniswap
The following companies have reported fake tokens in circulation before they have even been listed: Tornado Cash, Curve Finance, and 1inchExchange. Before the permit is listed anywhere else, they list it on Uniswap ahead of time. These scammers trick victims into believing they buy authentic cryptocurrencies using the same ticker as the fundamental asset. It is not long before the proceeds made from the sale of the “assets” disappear without a moment’s notice.
Tragically, these victims become enslaved to one of those worthless tokens, not only now, but in many cases for the rest of their lives as well. They’ve just had their investments disappear within seconds without the option of recourse. This should serve as a warning to you next time you wonder if you should invest in a new coin on a whim without conducting the necessary research.
Here are some tips on avoiding DeFi and Uniswap scams
Although DeFi scams are known, they are hard to detect. In this way, how could one be sure that they are investing in genuine decentralized finance projects instead of fraudulent ones? I want to suggest some tips here.
- The Development Team
Within the crypto space, the team launching a project is frequently anonymous for decentralization, privacy, and anonymity. Nevertheless, if the unknown team is a scammer, it will be challenging to find them since it may be challenging to track them down. The best way to ensure that a project is on the right track would be to assess it with the greatest caution. It is essential to recognize that anonymity is not always an issue in development. This is especially evident in the case of Bitcoin’s founder/s.
- A Code Audit and Smart Contracts
We recommend that smart contracts and code for all projects be audited to ensure no bugs or discrepancies that might cause users to have problems with them. We must stress, however, that such an audit is expensive. For a project to be considered credible, financial resources will need to be spent on well-known engaging auditors to conduct the audit.
It should, however, be pointed out that scammers do not have this option as their end goal is to rob individuals of their investment funds. This red flag must be caught in the long run by scrutinizing intelligent contracts and code audits.
- Token Distribution, Contract Addresses, and Transactions
In the first place, anyone can acquire tokens and distribute them, especially on platforms created by themselves. Any individual interested in buying a DeFi token should check the distribution and liquidity of the ticket to be on the safe side. Quite often, teams may attempt to boost the price of their tokens by liquidating all of the tokens. Later, the team will withdraw all the funds, leaving users worthless tokens.
If you want to purchase tickets from a group, make sure that they do not hold the highest value tokens in circulation before you buy them. Addresses of contracts are also necessary. You can access analytical information about a particular project by searching the others to address the task.
Consequently, you can perform various operations about such items, including 24-hour trading volumes, last locking of liquidity, and last withdrawal of liquidity, trading pairs, among many others. In the case of minimal or non-existent analytics for the project, veering away from it would be the best course of action. Check out all of this information on the leading crypto-based platforms such as CoinMarketCap, Dappradar, and CoinGecko before making an investment decision.
- Project Plans and Social Media Presence
In many projects that plan to carry out their activities, the whitepaper is usually published before starting their activities. A platform whitepaper will include the problems the platform intends to solve a roadmap outlining its development. It will clearly outline the team’s contribution to the project’s success. If a project does not plan to release a white paper, there is a clear red flag for you to be on your guard.
In addition, projects with a clear plan ahead of time will have a solid social media presence and will be able to elicit positive feedback from users. A further advantage of such a system is that it gives the participants a chance to examine their respective platforms and highlight any places they should be improved. Without these elements, media may be considered scams in the future that will have adverse effects on users.
- UniCrypt: Helping You Fight against Uniswap Scams
As of right now, several projects have been announced to give back hope to investors and restore their faith in the world of DeFi. A project such as UniCrypt, which provides users with transparent investment management and an independent platform, offers users a wide range of opportunities. The Unicrypt team announces its plan to release its launchpad by the end of this month (the launchpad is now in the audit stage and will be released by the end of January), which will give projects a platform to conduct presales.
In addition to ensuring investors’ funds are protected, it will permit projects to launch without delays or possible bottlenecks resulting from acceptances or other potential problems. It was evident from this that she has several properties in place that can perpetrate fraud schemes such as DeFi.
As a first step, there is the UniCrypt launchpad, a system that locates any suspicious projects operating on the UniCrypt platform and notifies those safe listed parties about them. Despite its independence, it will flag any malicious activity, whether mining, block listing, or proxying. Each presale conducted on the platform will display these details on each page.
Secondly, UniCrypt uses the liquidity lock function on the interoperability layer to prevent any exit scams or rug pulls that may occur after the presale. To protect inventors’ funds, developers need to keep their liquidity for a set amount of time before releasing it. Everyone also reaches the presale soft cap, so everyone gets their money back if it is not called.
A crowd sale can be run with a market initialization requirement using UniCrypt’s liquidation lockers and launchpad. Upon the crowd sale, the market will be initialized and added to the Uniswap platform with the liquidity locked in. For example, UniCrypt offers the same features as Uniswap: decentralization, automation, and scalability.
- Parting Shot
Increased awareness and protective tools haven’t ended DeFi scams, so it would be a lie to claim that. Despite this, we have to examine these projects to determine good and evil. Ultimately, I believe the DeFi industry is suitable for making money and engaging in remarkable technologies.
The investor should, as a rule, study thoroughly what he wants to invest his money into before putting it on the table. It is essential to pay attention to projects that aim to help you achieve your goals in terms of yield farming while protecting your interests. In addition, you should never disregard what social media has to say about any project.
There is no denying that it is the largest distributor of knowledge and information coming from a multitude of worldwide entities. Lastly, keep the pointers mentioned above in mind when you do everything for the best experience with DeFi.
- Analyzing Social Media Accounts & Sentiment
Be sure the company’s social media accounts have been updated recently and that there are a lot of excited (not hostile) community members participating. Keeping these details updated will act as an extra layer of protection for your investing money. It will expedite your process of discovering potential red flags if you spend some time finding complaints. It would be best to comb through all the complaints and concerns to locate and find out what is going on.
You must start with the essential aspects. By doing this, you can save yourself time and focus on the next investment opportunity. Saving time and reducing stress is the reason for doing this. Some complaints may be exaggerated, while others are understated. Still, if you want to have a comprehensive understanding, you need to find out what a majority (or at least a good percentage of the community) is saying about it.
It’s important to remember there’s always a bullish and a bearish side to every story. Spending a few minutes of your time researching can save you a lot of tears and money, but I HIGHLY recommend spending a few hours (at the very least). In the event that you find a non-biased and impartial reviewer who will review the token on YouTube or another platform, you won’t have to worry about getting poor results. The crypto community is still relatively new, and it can be challenging for new participants to distinguish between the two.
Reviews are sometimes accepted just to receive payment. For the quick cash, they will give dishonest and positive reviews. If it means getting a fat check for falsely promoting the token, these people will not have a problem going to sleep knowing that they lost everything. You will easily be able to recognize red flags after having had enough time to become adept at spotting them in any situation.
Check search engines and forums if you’re unsure. It is always a good idea to do some research and never assume that someone will be acting in your best interest at all times. There are simply three ways to stay safe: NEVER give up on letting your guard down, ALWAYS DYOR (Do Your Research), and NEVER cease to learn. In addition to staying current with current events, being up-to-date on the current trends will also help you look for upcoming trends, discern what to expect, and ultimately learn how to handle them.
CONCLUSION
The point is platforms such as Uniswap, and other decentralized platforms provide a tremendous opportunity to investigate and gain substantial incomes from decentralized finance. However, you need to carry out sufficient research before making your investment, as with any other type of investment, to avoid being conned.
It is possible to develop a sixth sense for sniffing out dubious projects with a little bit of practice and time spent in some crypto trenches, which allows you to select those that have actual value and significant upside potential.