As the decentralized finance (DeFi) ecosystem evolves, it has highlighted some pain points that need addressing.
Earlier this week we reported that the system is under attack, not by people who are hacking in it but by fraudsters.
After Mark Cuban fell victim to TITAN, a DeFi project that ended up with the developer eloping with all the assets and killing the project, the security of DeFi started to come under greater scrutiny.
As it turns out there have been other similar cases. Projects such as Polywhale Finance and Swipe, the company behind the BSC third-largest protocol Venus, have all faced allegations of pulling a fast one on the community.
So, the question today is whether you should allow this to discourage you from DeFi? The answer is – no. But you ought to know what to do.
Fraudsters may seem to mean well – at first
Even dubious projects will often have all the hallmarks of a promising start-up. You will be invited to participate in community topics, increase your stakes through various engagements with the platforms and more.
Yet, sooner or later, community members will find a reason to doubt and question certain aspects. It's important to find projects that have a name to put to.
While many start-ups are fairly unknown and grow to success, in today's hyper-connected crypto space, unlikely that a genuine developer would not have a strong presence online.
When Cuban commented in the wake of the TITAN debacle, he said that he should have been more cautious of the project.
In his defense, fraudsters have become more adept. The “pump and dump” schemes seem not to work anymore as too many people are now wary of the dangers that the promise of a quick digital bug carries with it.
As a result, the best way to “monetize” a scam in the DeFi space is to build a project and make it valuable before hightailing it with funds. That strategy has one critical flaw – time. Time is what most communities need to figure out that something untoward is afoot.
So, what can you do to avoid a soft rug? Look, there are no guarantees. DeFi is new and regulators haven't quite caught up. They will be coming down hard on fraudsters, though, even if it's going to take years more.
For the time being, your own judgment is your best friend. Don't trust Elon Musk or Mark Cuban, because they can afford to have their funds stolen on a TITAN-like project. You should do your due diligence and not be swayed by promises of imminent riches.
Remember, even projects that are trying to emulate a genuine development process will have early-day tell-tale signs. Missed updates and lack of transparency are red flags you should steer clear of.