DeFi has been around since 2017, but 2020 will be the year DeFi really explodes. DeFi has opened up new financial services full of potential but also full of risks. In the article below, Theblock101 explores with you the risks and potential when participating in DeFi projects.
1. Overview of DeFi
DeFi (Decentralized Finance) decentralized finance, in which financial services are provided through decentralized platforms, based on blockchain technology and smart contracts. DeFi allows users to perform traditional financial services without the need for intermediaries, and those transactions will be performed entirely on their own through smart contracts.
At first, DeFi was simply projects about wallets, dex floors, and lending. Gradually, DeFi has grown and become more diverse with new products Perpetual, Options,...
As a young market, DeFi has many investment opportunities and is potentially risky. Many people got rich overnight, but there were also people who lost everything in just a few hours.
2. Risks when investing in DeFi projects
2.1. Smart contract risks
An important part of the DeFi system are smart contracts.
Smart contract risks involve errors in the contract source code or insecure design, which can lead to loss of funds or fraud.
For example, in 2020, the DeFi protocol "YAM Finance" encountered smart contract problems, from the project's negligence in rushing out the product without auditing, which led to leaving vulnerabilities for hackers. exploit. As a result, most of the value of the YAM coin was lost in just a few days.
To avoid the risks associated with smart contracts there are several methods:
Check the project's audit report and whether the audit units are reputable.
Check smart contract safety on https://dexscreener.com/.
It is not recommended to keep assets on a single platform.
Nothing is absolutely safe, you need to get into the habit of revoke asset usage rights from smart contracts to keep your wallet safe.
2.2. Security risks
DeFi services can become the target of cyber attacks or security vulnerabilities, leading to loss of user assets.
For example, in 2021, the DeFi protocol Poly Network fell victim to a hacking attack worth hundreds of millions of dollars, losing users' funds and tokens.
Most recently, the KyberSwap project was visited by hackers, KyberSwap's liquidity pool was attacked through a flash loan, causing a loss of 47 million USD.
2.3. Risks from the project team itself
In the crypto market, besides quality projects, there are always scam projects and user rugpul.
This form of fraud is very sophisticated, the dev team has real products, builds normal communication channels like other projects to create credibility to attract users to deposit money into the platform. One fine day this dev team will run away with the money, users will no longer be able to access the platform.
For example, in July, the Kannagi Finance project on zkSync Era pulled the community rug, TVL from $2.13 million went to 0.
2.4. Risk from price fluctuations
The crypto market has large price fluctuations and is very sensitive to news. In case you participate in a lending platform, sharp price fluctuations can lead to liquidation of collateral. Another case is providing liquidity on DeFi platforms, where strong price fluctuations will lead to temporary losses.
2.5. Risk of liquidity problems
For DeFi projects, market liquidity risk is the most worrying thing. When you trade large amounts of money, always consider checking the liquidity of the trading pair. There have been many cases where after swapping a large amount of money, you only receive a few dollars.
2.6. Risks from fake links
Counterfeiters are becoming more and more sophisticated, the problem of clicking on fake links not only happens to newbies but also to those who have been in the market for a long time. Some common forms of fraud are as follows.
Pretending to be an admin: Many scammers will pretend to be admins and text you in advance inviting you to buy private rounds, luring you to deposit money in advance to join closed groups to share bets. Especially if you have problems with the exchange or wallet, when texting for help in exchange groups, scammers will text first and lure you into sending a Seed phrase or give you a scam link.
Impersonating a project media page: This form will deceive your eyes and your greed. Fraudulent bettors will create media pages such as twitter or websites that fake official channels. At a glance, it will be very difficult to detect. They will lure you with news of airdrops and claim tokens. If you click and visit these pages, the rate of losing your assets will be very high.
Impersonating a recruiter: This form has only appeared in the last 2 years. The target of these scammers' attacks are community group admins who are looking for work. They will send you an APK file or ask you to download the application from their website and then ask you to install it on your computer. When you install the file, the malicious code will access your computer and steal important information such as mail, Seed phrase.
2.7. Legal risks
The Crypto market in general and DeFi in particular are not recognized and protected by law. In case you lose money from attacks, it will be very difficult to reclaim it or ask the government to intervene.
3. Potential when investing in DeFi projects
3.1. Opportunity to receive airdrop
DeFi projects make their mark on the community with airdrop rewards for the community, with some very large airdrops ranging from several thousand to tens of thousands of dollars.
Some prominent airdrops include:
Uniswap Airdrop 400 UNI to 250,000 wallet addresses, it is estimated that each wallet received more than 1000 USD at the time of Airdrop.
Aptos Labs, the project will airdrop to those who participate in the Aptos Incentivized Testnet (node running program) (each wallet 300 APT) or have minted Aptos Zero NFT testnet network (each wallet 150 APT). It is estimated that each wallet receiving Aptos Airdrop is worth more than $1000 each.
Jito airdropped to 9000 wallet addresses, low wallets received $10,000.
3.2. High growth and profit potential
Listing tokens on a DEX is very easy compared to CEX exchanges, so listing DEX exchanges helps young projects that do not have enough financial strength to easily access the community. On the user side, there is an opportunity to invest in potential projects early, and when the prices list on major exchanges like Bybit and Binance, the prices have increased a lot.
3.3. Opportunity to earn passive income
Users can participate in providing liquidity on DEX platforms, or participate in farming on Yeld Farming platforms or participate in lending on Lending platforms to earn profits.
3.4. Job opportunities
DeFi projects have many job opportunities for you, DeFi projects often have programs to recruit ambassadors or local community managers. When you work in those positions, you will receive a salary from the project, the price ranges from $500-$2000. In addition, you will know important information about the project in advance, which is an advantage in investing.
4. Conclusion
The DeFi market is very new and full of potential to help you change your position in a short time, but it is also full of risks. Always be fully equipped with knowledge before participating in the DeFi market. If you have questions that need answering, don't hesitate to ask them at Bigcoin Vietnam, you will receive support from the admins.
