DeFi scams. They are certainly a growing monster. Without any arguments, Decentralized Finance (DeFi) has become quite a scintillating and trending topic in the crypto world lately. However, its new-found prominence is threatened by scammers who have infiltrated the market to carry out their craft, which is to steal people’s investments.
Unfortunately, DeFi is a sector where stolen funds are difficult to recover. Additionally, those responsible for any malicious activities are hardly brought to book. Despite this roadblock, it is not impossible to keep your investments safe if you look in the right place.
Table of Contents
Key Points
- Both beginner and expert traders still fall victim to scam DeFi platforms
- Malicious activities on the rise in the DeFi market. There are several DeFi scams.
- There are red flags to look out for, which exposes fraudulent DeFi projects
- LID protocol will provide the much-needed security for people investing in DeFi projects
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DeFi Scams On The Rise
Anyone conversant with the decentralized finance (DeFi) sector will attest to the fact that DeFi scams are becoming a regular occurrence. Like clockwork, a project’s “exit scam” makes the news almost daily, leaving in its wake a fresh batch of disappointed and unsuspecting investors as victims. Other forms of DeFi scams include fake pre-sales, rug pulling, and others, which bleed both experts and novices of their ETH.
With the cost of entry being almost zero, rogue actors have taken advantage of the DeFi market to repeatedly siphon valuable Ether from victims. These DeFi scams make use of every resource at their disposal to advertise their fake products, and this includes social media shills and the craze for high yield farming. In the end, they’re able to get their hands on large amounts of money, which can run into hundreds of millions of dollars.
Some platforms such as Binance are now offering users with the possibility to get access to DeFi solutions. DeFi scams would not be added to this platform.
The Modus Operandi
All DeFi scams are similar because they follow the same rulebook. It usually begins with the creation of a new product, which is simply a tweak of an existing token contract code. Also, the identities of the founders are kept secret.
The next step for the con artists is to identify the recent trend in the DeFi market. With this information, they will build a marketing strategy around their product. Next in the scam playbook is to flood Telegram groups and social media platforms with paid shills of their “awesome” DeFi products through individuals who usually have high Twitter followers.
In the end, investors are left with a bagful of valueless ERC-20 tokens because the products have zero use cases. Take into consideration that cryptocurrency scams have always been a problem for the crypto market. Despite that, DeFi scams are a new kind of issue.
Identifying DeFi Scams from a Mile Away
The formats of these scammers are usually identical. Therefore, spotting DeFi scams is not a difficult task. There are certain things to be on the lookout for when considering a DeFi project, which will help you tell the real from the fake.
These are the things to take into consideration about DeFi scams:
1. The word “swap”
DeFi products that attach the word swap to their names usually have con artists behind them. For instance, Zilswap, JellySwap, Anyswap, etc. They’re all clones of Uniswap, a credible DeFi project.
2. Outrageous returns promised in yield farming
Projects with high farming yields are red flags. They usually give away lots of free tokens, which causes hyperinflation and a price crash.
3. Are ambiguous words used?
Any DeFi project worth its salt should have a website that clearly states what’s to be expected from it, as well as how it will achieve its goals. Investors should be wary of projects that only lay emphasis on profits and pay little or no attention to technology.
4. Are the founders anonymous?
DeFi projects that delivered on their promises all have one thing in common – known founders and teams. Their CVs and biographies can easily be found on popular social media platforms like Twitter and LinkedIn. This is not to say DeFi projects with an anonymous team cannot be a real deal, but they pose a greater risk for investors as many of them have been able to carry out a “rug pull” scam and get away with it.
The Way Out
The impact of the many fraudulent activities in the DeFi space is beginning to affect the market negatively. Not only are individuals losing loads of money to these scams, but the market can also no longer afford to keep experiencing such attacks as they’re impeding its growth. This is where the Liquidity Dividends (LID) Protocol comes in.
LID protocol allows crypto projects making use of ERC-20 tokens to lock liquidity of tokens via Uniswap to prevent scams like “rug pulling,” where liquidity is pulled out of a DeFi project to dupe investors.
As an organization that’s committed to the success of decentralized finance, LID Protocol facilitates the locking of token liquidity of non-custodial pre-sales in a trustless manner through Uniswap. This will make it impossible for investors to be defrauded by DeFi projects through “rug pulls” or any similar scams.
The official website of the Liquidity Dividends Protocol
What More Does LID Protocol Offer?
With the use of the latest technology, the Liquidity Dividends Protocol removes difficulties associated with depositing liquidity into Uniswap. Its business model can be summarized as a certification and licensing system. New ERC-20 projects are guaranteed a place on the DeFi market, thanks to the certifications and technology from the stables of LID protocol.
They remove all ambiguities surrounding the DeFi project and inspire trust within investors. Furthermore, the LID Protocol has collapsed the entry barrier of the DeFi space, meaning that it is now easy to launch trustless Uniswap businesses.
The LID Protocol Features
Secure Purchases
This feature protects against the infamous exit scams. Liquidity Dividends Protocol adopts non-custodial pre-sale smart contracts in this fight, ensuring that all liquidity is locked.
Some of the features of the Liquidity Dividends Protocol platform to fight against DeFi Scams
Social Referrals
All interested parties are obligated to make their fee payment using ETH. This will be channeled into a referral pool, providing the pool with 2.5% of the entire deposits. Members are entitled to 2.5% of any deposit someone makes using their referral code.
Community Driven
The LID Protocol is indeed community-driven, in the sense that stakeholders are encouraged to participate in a DAO. Those who contribute meaningfully to the community are rewarded using a referral program, transaction tax, and voting participation multiplier.
Licensed LID
The technologies of LID Protocol have been proven to be efficient in the secure deposit of liquidity generated from pre-sale into Uniswap. Now, the company is taking the next step to make the technology available to other projects through licensing, and together they’ll bring an end to “exit scams.”
Disclaimer
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