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There is no opposing the fact that the DeFi industry is rising. Since the summer of 2020, called the ”DeFi summer,” the total value locked in multiple protocols has been growing. At the same time, volume on Decentralized Exchanges (DEXs) and Automated Market Makers (AMM) has also been rapidly rising.
However, the number of attacks in the DeFi sector has significantly risen due to this.
Even though every protocol carries some apparent risks, with the right amount of research, blatant frauds, exploits, and rug pulls can be avoided.
In light of this, we have put up a list of precautions you may take to protect yourself from DeFi scams.
Common DeFi scams
- Hacks and Exploits
Without question, this is something to be aware of. But unfortunately, the DeFi space is a haven for skilled hackers who analyze different protocols for any potential loopholes they use to their advantage and steal as much money as possible.
- Exit Scams
Exit scams are another thing to be on the lookout for. They occur when the team behind a particular project vanishes, taking the investors’ money along with them and going completely unnoticed.
These frauds most frequently occur during the early funding rounds. For instance, a project can promote a private sale in which investors can receive a terrific deal before their tokens are made available to the general public. Unfortunately, there are instances where the project is never completed because the team pulls an “exit scam” and escapes with the money raised from initial investors.
- Rug Pulls
These could also be categorized as exit scams. They are different, though; in this, the company doesn’t keep the money that users put into a presale round; instead, they offer the token on a decentralized exchange and wait for enough individuals to sign up to add liquidity to the pool.
The team would “pull” the liquidity out of the DEX and aggregate everyone’s stake in it after they had accumulated enough individuals and money, respectively.
6 Ways to save yourself from DeFi scams
Even in traditional finance, scams are common and are closely monitored by both federal and legal authorities. However, this is particularly true in the DeFi sector. Money is being thrown into every available and new crypto project. Bad guys lurk around every corner in a town without a sheriff, hoping to capitalize on your fear of missing out. Here are some simple ways to keep your bacon safe if you’re new to the world of altcoins:
- Do not click on links in emails.
Visit the website the email appears to originate from using your browser. Verify the URL yet again. Assess whether this email makes sense. Did you actually attempt to log into one of your crypto accounts and fail? Or did you get an email requesting you to change your password out of the blue?
- Enable additional security measures.
Decide to use extra security protections if your wallet or exchange platform supports them. When you try to log in, you may activate 2-step verifications, which can send email or text codes to your inbox or phone. Next, enable biometrics that requires your fingerprint to launch the app if you trade using mobile applications. And finally, if possible, add a unique anti-phishing password to your crypto accounts. Emails from specific accounts or platforms will reflect the code you created within the email, letting you know they are valid.
- Always be suspicious.
Just assume that everyone is attempting to mislead you on social media. Be critical when interacting in direct messages, comment sections, or discussion forums. Never give someone your money, coins, or crypto credentials. Make unique emails and robust passwords for each of your crypto accounts. Never do crypto trade using your regular personal email.
- Cross-check the URL.
If you use crypto to make online purchases of products or services, double-check the website address to be sure you are dealing with a real business and not a fake website created to steal your personal data. Verify that the business name is spelled correctly. Scammers frequently replace letters with numbers that seem like letters, such as an “l” for a “1.” Verify that the “s” or a forward slash is present in the URL address (“https://”).
- Buy a cold wallet.
Keep your crypto in a “cold” wallet, which is a physical device like a USB that holds your coins offline if you are not actively trading. There are a lot of brands from which you can purchase cold wallets. Always purchase them straight through their websites, and never from any 3rd party online stores.
- Do your own research, always!
Always conduct extensive due diligence and research. Make sure you are familiar with the developers, the source of the project’s funding, and the validity of the use case before investing in any crypto. But be aware of the risks as well. Although you have examined the project, you can still lose everything. Despite the fact that this coin appears to be genuine, are you willing to lose money on it? If not, turn around.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
