The buzzing world of Decentralized Finance (DeFi) has racked up its fair share of brickbats and bouquets ever since rising to popularity in 2020. It broadly refers to non-custodial, peer-to-peer financial services built on smart contract-enabled protocols, usually for services like lending, flash loans, trading, insurance, and many others.
But with the innovations comes the money, and with the money come scams. Millions of dollars have been lost to DeFi exploits, hacks, “rugpulls,” and flat-out frauds in the past many months, with most of the stash exiting the market to never return.
Binance Smart Chain, the smart contract-enabled version of the Binance Chain, has emerged as a hotbed for such scams. Names like BurgerSwap, Belt Finance, Impossible Finance, and others, have accounted for millions of dollars worth of damages, with some like ‘SafeDollar’ on Polygon have dropped to $0 after getting exploited by hackers.
Not all hope is lost, however. There are ways to remain protected and lessen risks from DeFi exploits. Here’s Jeff Kirdeikis, CEO of DeFi app TrustSwap, with five tips on how users can get in the know and lessen their risk.
Reducing DeFi risks
1. Don’t over-commit.
When it comes to investing in cryptocurrencies, it’s important to never invest more than you can afford to lose. This is the golden rule of investing in general, but it is also extremely applicable to the world of crypto and DeFi. While there is much promise in this sector, DeFi can be extremely risky, and it can be easy to become overzealous in your investments.
Take the time to plan and budget, focusing on building a solid foundation before investing more, but don’t be afraid to make a profit every once in a while. Always remember the crypto market is volatile, so proceed with caution.
2. Do your homework.
As crypto enthusiasts say, DYOR, or Do Your Own Research, before making any investment. The crypto world comes with both great opportunity as well as great risk, so make sure you do your homework to educate yourself from reputable sources.
There is a ton of misinformation out there on the internet, and being an uninformed investor can lead to a downfall. To avoid “shilling,” where people advertise coins that they own in hopes of positively affecting the price and oftentimes so they can sell up on you, it is important to have as much factual knowledge as possible before making a decision to invest.
3. Don’t overshare.
To ensure your crypto investments are as secure as possible, never share seed phrases or private keys with anybody, even if the website has a secure icon or certificate. If a customer service agent is asking for your phrases or keys, it is most definitely a scam.
The only reasonable time you should ever enter seed phrases or private keys is if you change hardware wallet, browser, or device and need to restore your wallet. Any other time you reveal this information, you are no longer in control of your wallet and therefore, all of your funds.
4. Do lean on the safe side.
Purchasing a reputable hardware wallet and enabling other security measures, like two factor authentication, will ensure your digital currency will stay as secure as possible. Also beware of malicious applications that can access your tokens or use your device for processing power-consuming mining activities.
The famous “send me 1, I’ll send you 2” scam is common in the crypto world, along with Ponzi schemes apps claiming “free crypto” if you refer a friend. If it’s too good to be true, it probably is!
5. Don’t fall for phishing attacks.
Email databases get hacked frequently, which gives hackers complete access to your personal information and crypto-assets.
Be aware of suspicious emails and links, as hackers obtained your personal information and therefore can easily impersonate the hacked company, and by adding malicious links, access additional confidential information and maybe also your funds.
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