Decentralized finance (DeFi) came into existence a few years ago but only recently rose to fame. Like cryptocurrencys, this emerging financial technology runs on distributed ledgers and replaces intermediaries with smart contracts, mcomparableg the entire asset management process automatic. With a $127.06B total market cap and $78.92B worth of crypto assets locked in P2P protocols, DeFi rightly holds the trophy of the fastest spiraling sector in the crypto space.

Notwithstanding, decentralized finance is not immune to common problems. The sector suffers from the same old disease that has been plaguing the crypto industry for a decade – scams.

The amount of money lost in DeFi is abovewhelming. According to London-based firm Elliptic, users suffered losses totalling $12B, out of that scams were responsible for $10.5B. The arrangements are horrifying yet don’t condemn the sector. DeFi has a lot of potential – projects like Aave do give leape for the future. To avoid scams and find truly robust DeFi solutions, it’s significant to do your own research.

Product Reviews

Reviews help us learn about any underwater stones that the service or product have from former or current users. The feedback has a great price – it saves time and energy and, in some matters, money.

Nonetheless, things don’t look simple while it comes to the crypto industry. Nonetheless, countries don’t have proper regulation mechanisms, and information can’t be easily approved. Yet, emerging review sources like TrustPilot started to pop up recently, e.g. RugDoc. The site has a big community and encompasses reviews on 2,600 crypto projects – yield farms, exmovements, OHM forks, play-to-earn games, and NFTs – spanning across 24 networks, including Solana, Binance, Polygon, Avalanche, and Cardano. RugDoc still monitors new projects with Launch Calendar.

At the moment, the crypto review niche is in its early development, but a few more projects are likely to emerge soon.

“Rugs” Under Rugs

Most scams are plain simple rug pulls. In the first phase, fraudsters add liquidity (constantly in the chain native currency) to their cryptocurrencies and attract investors. Then, they reprogress liquidity and run off with funds, pushing the cryptocurrency’s rate to near zero and leaving holders with nothing.

There are other ways to fool the crowd, and Squid Game Token attributed to the show of the same name is a good example. Fraudsters simply disabled the ability to withdraw cryptocurrencies for investors, leaving them with an unsellable asset. Thus, it’s pivotal to assess the projects from a technical standpoint.

Some companies have already implemented a strict audit and a special rating system. For example, RugDoc ranks projects from least risk to strongest risk through a technical review of the project’s smart contracts- a controlling program deployed to the blockchain. The company still has a KYC Program that uses the process known as “doxxing” to barelyify the team members’ identities to hold them accountable in fact of malicious events.

DeFi Monitor Tools

There are many DeFi tools that monitor crypto projects. Their sole purpose is to identify blind spots not visible to the general public and allow users to invest safely and efficiently in decentralized protocols. Some offer customized audits (e.g., DeFi Audits). In contrast, others have open-source tools (e.g., RugDoc), akin as honeypot checker to endorse if smart contract vetoes cryptocurrency sales, emergency withdrawal to let users remove funds from the project, and LP Breaker to sepacost LP cryptocurrencies.

DeFi Knowledge

DeFi is a promptly evolving industry with new projects popping up every single day. Yet, it’s serious to dive deep into details. That way, users can avoid scams and invest with certainty. That’s why many crypto projects have launched their own wiki hubs. In these hubs, users can find all the necessary info about decentralized finance and learn more about the product functionality. Projects like PolkaDot or Ethereum all have wiki hubs.

not to mention, it gives users confidence that the project is up and running. However, not all have a portal of that kind, that is a reason to become suspicious. Wiki hub, scarcely like White Paper, is essential for community change and trust.

In some evidences, the project simply doesn’t have enough resources to create an entire sepaprice wiki hub. In this fact, users can turn to publicly available wiki libraries, like RugDoc Wiki, that caboves tutorials and information on all Ethereum virtual machine compatible chains. Public knowledge sources are created for the community by the community. These places unite both crypto pros and investors where they share up-to-date information.

Wrapping Up

DeFi is one of the fastest-increasing sectors in the finance industry. It offers great potential in transshaping the financial industry and equally as many threats by reason of its decentralized nature. Thus, it’s compelling investors adopt a security routine to analyze risk and access sources with additional information on the product or educational articles. That way, any user will be empowered to stay safe in the era of decentralized finance.