How to spot and prevent DeFi scams ? A Complete Guide

What is DeFi?

Decentralized finance, or DeFi, is a grab term for a slew of public blockchain apps and projects aiming at upending the current financial system. DeFi is a term that refers to financial apps that are built on blockchain technology and use smart contracts. It is inspired by blockchain technology. Smart contracts are legally binding, automated agreements that can be accessed by anybody with an internet connection. They are carried out without the involvement of a third party and are accessible to anyone with an internet connection.

How does DeFi work?

DeFi uses cryptocurrencies and smart contracts to deliver financial services, removing the need for intermediaries such as guarantors. Among the services available are lending (where users can lend their cryptocurrency and earn interest in minutes rather than once a month), receiving a loan instantly, making peer-to-peer trades without a broker, saving cryptocurrency and earning a higher interest rate than a bank, and purchasing derivatives such as stock options and futures contracts.

What are the types of DeFi Scams?

Rug pull scam:

This popular scam is common in the decentralized (DeFi) altcoin currency market. The majority of a coin's supply is held by one or a few investors or developers. Then they go to work promoting the coin and creating buzz around it. To generate demand and boost sales, they use social media platforms such as Facebook, Instagram, Twitter, YouTube, Telegram, and Reddit.

Honeypot scam:

The honeypot scam, like most cryptocurrency frauds, entices investors with enormous buzz, big-budget marketing, and grandiose price expectations. People begin to try to profit as money rushes in and the price rises. And that's when you're confronted with the harsh realities of life.

Wallet dusting:

This form of scam, often known as "dusting," is exceptionally malicious and complex. You presumably have a handful of digital wallets like MetaMask or Trust Wallet if you trade altcoins. Because they are cloud-based and connect directly to exchange systems, these are referred to as "hot" wallets. However, wallets on CEX systems are also at risk.

Phishing scam:

Phishing is a type of fraudulent social engineering assault that seeks to deceive you into disclosing sensitive information such as usernames, passwords, credit card details, and even social security numbers. They're looking for any information that may allow them to impersonate you or acquire access to your cryptocurrency accounts.

Social media accounts scam:

Without a vibrant community, a flourishing cryptocurrency market would not exist. On social media platforms such as Facebook, Reddit, Telegram, and Twitter, to mention a few, cryptocurrency communities abound. And they're expanding quickly. For new crypto converts, they provide fantastic tools and learning opportunities. They are, nevertheless, a rich hunting ground for con artists.

Ways to guard yourself against cryptocurrency frauds:

Here are some strategies to keep you safe and prevent from scams,

Never click links in emails:

Visit the website the email purports to originate from using your browser. Verify the URL once more. Consider whether this email makes sense. Did you actually attempt to get into one of your cryptocurrency accounts and fail? Or did you receive this email requesting you to change your password out of the blue?

Activate additional security measures:

Choose to use extra security protections if your wallet or exchange platform supports them. When you try to log in, you can enable 2-step verifications, which can send email or text codes to your inbox or phone. Enable biometrics that utilize your fingerprint to open the app if you trade using apps on your phone.

Stay cautious:

Just assume that everyone is attempting to deceive you on social media. When participating in direct messages, comment sections, or discussion forums, be crucial. Never give someone your money, coins, or crypto credentials. For each of your cryptocurrency accounts, create unique emails and secure passwords. Never conduct bitcoin business using your regular personal email.

Verify the URL once more:

If you use cryptocurrency to make online purchases of products or services, double-check the website address to be sure you are dealing with a real company and not a fake website created to steal your personal data. 

Acquire a cold wallet:

Keep your cryptocurrency in a "cold" wallet, which is a physical container like a USB that holds your money offline, if you are not actively trading. Purchases a cold wallet straight from them through their websites. Never purchase from independent merchants.

Continually use trustworthy exchanges:

Stick to the well-known DEX sites if you wish to purchase a cryptocurrency that isn't included on the CEX platforms. Even though they are DEX platforms, these are well-known trading platforms that the crypto community generally regards as reliable.

Conclusion:

The truth is that things are rarely simple, and you actually need to go into the project's basics to determine whether it is authentic or not. This is true even though we have highlighted the most popular aspects to look at.

However, keep in mind that you should take some time to browse our page. You may get a plethora of information on the subjects that interest you right here.

With that being stated, thank you for reading, and best of luck to you in all of your future cryptocurrency endeavors!