Distrust and Malpractices are the Minefield of DeFi
The decentralized exchange (DEX), Uniswap, has been around since its launch on November 2, 2018. Recently, thanks to the boom in decentralized finance (DeFi), Uniswap has seen 24 hour trading volume in excess of $210,000,000.00 and total value locked (TVL) of over $2 Billion dollars, which places it at the top of the DEX list of exchanges. Anyone with some ETH in their wallet and a new token smart contract on their computer can run an initial coin offering (ICO) on Uniswap. The smart contract can be copied and pasted together in 5 minutes. A twitter account and telegram account can also be set up in 5 minutes.
Among the most popular actions scammers will often perform is what’s called a “rug pull”, or a liquidity drain while the ICO is ongoing or shortly afterwards. Uniswap and other similar exchanges like Sushiswap do absolutely no vetting which turns DeFi investing into a virtual minefield filled with dishonest projects and corrupt actors. Since we have entered into the Spring of another hype season in the crypto space, unsuspecting investors are at risk of suffering huge losses.
Riding on the coattails of successful legitimate DeFi tokens that have provided staggering yields, malicious rogue actors are flooding automated market makers (AMM)’s like Uniswap with fake tokens. Their modus operandi (MO) is to remain anonymous, or use faked pics and bios of the team. Not all anonymous developers are bad actors, but until there is consistency in the laws even the legitimate actors are wise to follow their legal advisors recommendations and keep their identity anonymous. This is DeFi after all, and the platforms have to be permissionless, trustless and automated in their day to day functioning with governance in the hands of the community rather than the core team of developers to remain immune from the “Travel Rule” of the FATF.
There are many ways for malicious actors to exit scam on their investors. The most obvious way is to not lock up any of the team or liquidity tokens. By not locking tokens, a devious dev could let the ICO go forward until there was sufficient ETH in the contract to satisfy their greed and then use their dev tokens to sell for the ETH in the contract. If the liquidity on Uniswap is not also locked, they can remove it from the smart contract leaving investors with bags of worthless tokens. Token launches on the YFDAI platform have to lock both dev tokens and liquidity or they will not be able to proceed.
Exit scams can occur if the devs have the power to mint new tokens with a minting function in the contract, or even change the contract if they have admin or “God privileges” to alter the code. Even if dev tokens are locked the devs could start buying tokens when the sale opens at the lowest price and then when the price peaks, dump them all, crashing the price. The contract might have bugs in it that enable certain functions to trigger like “withdraw all tokens and ETH” from the contract similar to the SYFI incident where a hacker triggered a bug connected to the rebase function that resulted in his being able to cash out $250,000. The best way to stop these types of malicious acts is to have a reputable company perform an audit of the smart contract that looks for bugs and back doors. YFDAI requires all projects launching on their platform to undergo smart contract audits. Not all projects that launch with unaudited code are necessarily frauds, but it is one of many red flags to look for. If they have the contract audited they can post it on etherscan under the contract tab. That’s where you should check for it. YFDAI’s contract has been audited and you can see the audit at this link.
Another incident that happened recently was the Hatch Rug Pull. What makes this theft interesting compared to most is that the devs behind the Hatch scam had locked their tokens via Trustswap, giving the project the impression of legitimacy. Lurking in the code however was a minting function in the contract that enabled them to mint 2 million new tokens which they then used to sell back to the contract and drain all the ETH liquidity. Trustswap’s CEO denied that they had any culpability for the loss because the software worked as it was supposed to work, and they don’t vet every project and guarantee they are not scams. Here is the response to the community from Trustswap where he confirms they only prevent #1) a) on the list “Dump Team Tokens”: Seeing as there is very little to no chance of any recourse to be had against the anonymous malicious actors who run off with the funds, nor the Trustswap service for doing anything to facilitate the crime, the Hatch investors are left holding the bag. While nobody can 100 % guarantee the legitimacy of any project, the best that can be done is to do a proper due diligence examination of the project. Many newcomers to the crypto space lack the time, knowledge, skills, experience and determination to learn how to properly vet a project before investing in it. Many investors fall for the hype and “FOMO” in to an ICO hoping and praying that they won’t be cheated.
The shortcomings of Trustswap reveals a bitter truth; many projects in the DeFi space are not fully committed to protecting investors. Instead, facades of security are used to evoke a sense of false confidence in the DeFi space which can be extremely misleading and carry grave consequences. These practices result in the continuation of dishonesty throughout DeFi and damages its overall reputation. YFDAI Brings Light to DeFi
A DeFi investor dreams of an ecosystem where the benefits of a centralized exchange can be applied to decentralized exchange offerings. YFDAI is making that DeFi dream a reality with both its DeFi Launchpad incubator and SafeSwap exchange.
To end the era of DeFi scams, YFDAI has created two innovative platforms that will revolutionize the way we trade in the DeFi space. The platforms that will usher in the next DeFi era are none other than the YFDAI LaunchPad and SafeSwap exchange.
The YFDAI Launchpad seeks to incubate new DeFi projects to meet the highest standards of security, transparency and trust. This service comes with a myriad of perks and features to help new projects not only achieve the highest security standards but also to succeed in the DeFi marketplace.
YFDAI’s SafeSwap exchange will revolutionize DeFi trading as it will only list projects that have undergone audits, locked tokens, and continue to meet significant developmental milestones. DeFi projects willing to go under audit and commit fully to transparency and security can request to be reviewed by YFDAI and list on the SafeSawp exchange. Overall, projects who wish to launch their ICO on the YFDAI LaunchPad platform and SafeSwap exchange must adhere to a basic minimum set of protocols to protect investors. Firstly, projects must lock all team tokens in a smart contract that releases the tokens after a set period of time. Furthermore, they must lock all liquidity tokens for a set period (usually 2–3 years). Also, all project contracts must be audited and pass with a third party certification. These of course are just some of standards that must be met to be listed on SafeSwap. While its impossible to prevent and stop every single act of corruption in the crypto space, SafeSwap’s robust vetting process is exactly what the DeFi space needs to reach its full potential. SafeSwap is the first DeFi exchange that’s fully committed to fostering a secure and transparent DeFi marketplace ecosystem. Through SafeSwap, users wont have to run blindfolded into the current “minefield” environment that is DeFi.
Had the Hatch devs attempted to launch their project on YFDAI’s soon to be released LaunchPad and SafeSwap platforms they naturally wouldn’t have been granted a listing. The DeFi industry needs to be self regulating or regulators will show up and begin enforcement actions against the service providers in the space that they can identify and serve subpoenas on.
Through its Launchpad and SafeSwap initiatives, YFDAI is poised to clean up the decentralized finance arena with its myriad of services that are designed to minimize risk and maximize security for both new and seasoned investors. To have the highest chance of security, one should always conduct their own research and manage risk appropriately. While there is no better substitute for a thorough analyses on any potential project investment, YFDAI commits itself on making your DeFi journey enjoyable, simple, and secure.
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