Ray Dex | How to Stay Safe in Defi. Red flags and Risks

Decentralized Finance or DeFi is one of the fastest-growing protocols among blockchain-based platforms that is slated and mimicked most closely with conventional finance to provide economic and financial services like Loans, Insurance, and Interest-bearing accounts. The primary difference is that DeFi platforms, unlike conventional finance, are mostly automated, utilizing computer code that executes pre-agreed sensible contracts, called smart contracts, thus lowering costs without using an intermediary like a financial institution or insurance agent. Smart contracts are programmed to be executed automatically as agreements that get triggered when events or a set of conditions are met. 

They are non-custodial monetary providers and bear names like lending protocols and decentralized exchanges. But, being essentially programs developed by humans, they are typically prone to have bugs or gaping safety vulnerabilities providing hackers, and even errant programmers, to drain treasury wallets. It is helpful to look at various red flags that may indicate that a DeFi protocol may, in reality, be intended as a rip-off or something functioning as a defective piece of code. To do that, you don’t have to necessarily delve deeper into DeFi or learn how to program smart contracts. 

There are numerous utilities out there that can help you do this, such as a tool called Token Sniffer on the Ethereum blockchain and another program called PooCoin designed for Binance Smart Chain. These programs automatically execute token audits to identify smart contracts, ensuring that they do not include malicious code within them to cause harm to investors. Although these tools are not entirely foolproof, they may be an excellent place to begin ensuring that you do an excellent due diligence of businesses you invest in. Let’s also talk about different techniques used to scam investors in the DeFi space.

What Are Honeypot Investment Opportunities?

Cryptocurrencies are a relatively new space for investments. As a result, they tend to be volatile, which means that token prices tend to fluctuate wildly upon news that spreads fear or uncertainty over a while. But if you notice that a newly introduced coin is not volatile in price when all the rest of the currencies are, it might be a sign that it is what fraud experts call a honeypot scam. Honeypot scams are a trick where investors are attracted to an investment by continuously raising a token price. The scam here is executed by allowing investors to buy in using only a specific wallet where the scammers control the smart contract. One of the recent examples of this was called the Squid Game token. 

The DeFi investment attracted enormous media attention due to its apparent association with a Netflix TV show. The token quickly skyrocketed in value shortly after launch. It was sniffed out by the media for the inability of the investors to sell their tokens. But in the meantime, the token offerers had dumped their tokens and made off with millions of dollars worth of Binance network coins.

Rug Pull or Carpet Pull Scams:

This is another scam that is very common in DeFi. This happens so frequently that it is becoming a commonly defined phrase in the DeFi industry. A rug or a carpet pull is a scam where the fraudsters introduce a new token, launch an associated liquidity pool for the token, and create a link from the offered token to a base token like PULSE or a stablecoin like USDT or DAI issued on PulseChain network. The purpose of a liquidity pool is to provide liquidity to the protocol to execute trades without looking for a matching buyer to a seller, as done in the case of an order book protocol. 

This scam works because the fraudster offerers of the token keep a significant supply of the total when initially the token is launched. Once the token gains sufficient popularity and there are enough investors there to provide liquidity, the fraudster creator of the token will dump the total supply of their tokens into the liquidity pool and make off with the PULSE, or PLS, or whatever other valuable tokens out of the pool. Beware of these scams when investing in DeFi or any other investment opportunity that is too good to be true.

Contact Details:





CryptoMode produces high quality content for cryptocurrency companies. We have provided brand exposure for dozens of companies to date, and you can be one of them. All of our clients appreciate our value/pricing ratio. Contact us if you have any questions: None of the information on this website is investment or financial advice. CryptoMode is not responsible for any financial losses sustained by acting on information provided on this website by its authors or clients. No reviews should be taken at face value, always conduct your research before making financial commitments.

Amaury Reynolds

A freelance writer covering many topics.

Published by
Amaury Reynolds

Recent Posts

Burn to Earn: How Fitmint Lets You Exercise Your Way into Web 3

We all want to be healthier. They say exercise is so good for the body…

8 hours ago

What Is The Graph (GRT)?

The blockchain and cryptocurrency industry has become tremendously versatile over the years. Dedicated projects like…

10 hours ago

Can Mehracki (MKI) Compete With Meme Coin Giants Like Dogecoin (DOGE) and Shiba Inu (SHIB)

Meme coins generally rely on hype and buzz for their success, with the occasional endorsement…

10 hours ago

Coinbase commerce adds Siba Inu & APE, Gorilix (SILVA) hits new high

It’s been a long time coming, but community favourite Shiba Inu (SHIB) has now been…

12 hours ago

HOKKFi – A Community-Driven Token

Early in 2021, amid the meme-token boom, HOKK Finance set off on its voyage. Hokkaido…

14 hours ago

Laura K. Inamedinova on Maximizing Press for Blockchain Projects

Laura K. Inamedinova is the Founder & CEO of LKI Consulting, a London-based 7-digits B2B…

14 hours ago