How to Avoid Defi Scams
2021 alone has already witnessed various scams, from exploits, hacks, and rug pulls. This array of scams is seen in the crypto industry, including the Defi platform. It’s common knowledge that the Defi industry has been booming since 2020, that’s why some unscrupulous people want to gain undue advantage from it.
In other words, the skyrocketing value of Defi value has dramatically increased the number of exploits in the Defi industry ever since.
To make you not to get lost in the deep sadness of thought. Here are vital tips on how to avoid Defi scams.
Do a Proper Research
This advice might be common, but it’s crucial to do effective research of the Defi project you want to consider. Research to know who’s behind it, their website, work, previous projects, and if their identity is verified.
You can still do your background check even if the project team is anonymous. You can seek their reviews online or even go to their social media handles.
What’s more, take a look at the project’s product and check if you view a path where the product works. Check out or consider the materials provided by the project team so far.
The goal is to do an extensive study about the project before embarking. Doing it would at least reduce scams.
Check For Reliable Advisors and Investors
Similarly, check for investors and advisors of the project’s previous rounds. Know that every Defi protocol can be hacked. Thus, check if your preferred project has strong backing from credible investors, known teams, and funds.
Generally, projects with prominent investors and advisors are more reliable and less risky. You might want to reconsider if a project fails to state its early advisors and investors. Further, a completely anonymous project team might be a red flag.
Smart Contract Authenticity
Each Defi-based project has a smart contract. Firstly check if the team made its smart contract public. Doing this would permit you or even the experts to verify its authenticity and check its likely loopholes and possible attack vectors.
The overall rule is to invest in Defi projects with private smart contracts that are credible and fully verified. However, flee if you notice that the project team is anonymous with dubious products and private smart contracts. Significantly, don’t invest in any project that its smart contract hasn’t been audited.
The Initial Market Cap and Token Distribution
Another vital way to avoid Defi scams is to ensure that the tokens are distributed. When you notice that the project team would still own big tokens portions in circulation, re-consider. It might be a red flag.
Moreover, if the chart of the token distribution isnt public, you might skip it.
It’s important to check the project’s vesting periods. If there’s no vesting period and every one of the tokens is unlocked at the token generation event, consider skipping it. The team is likely to dump its coins in the market.
Conclusively, you can check all of the above in conjunction. Ensure to do proper research and consider the authenticity of the smart contracts before investing in any Defi protocols. Good luck!