- DeFi now has over 470 exchanges and 7,609 coins.
- However, the fast growth rate in DeFi is leading to many scams.
- The decentralized and permissionless nature of DeFi makes it hard to recover funds.
The Decentralized Finance (DeFi) space is fairly new and growing at an exponential rate. As such, scam projects are starting to become an increasing cause for concern. Here is how you can easily spot a DeFi scam.
According to CoinGecko, DeFi currently has 475 listed exchanges, 7609 coins, and a market cap of $1,615,395,404,539. Thus, with so many options it can be difficult to separate the good projects from the bad.
Of note, the decentralized and permissionless nature of DeFi also makes it very difficult to recover your funds in case of a scam. As such, prevention is always a better course of action.
First, when choosing a DeFi project ask yourself if the project adds anything to the DeFi space. While there are many similar projects in the DeFi ecosystem. However, most scams tend to mimic popular projects without adding any new benefits.
Also, check if the project has any developments or roadmap. Most legitimate projects will post updates either on their website or social media pages. If a project hasn’t had any developments since its deployment you can consider that a red flag.
Most blockchain projects are opensource meaning that the project code is easily accessible. If you personally do not have coding experience you can check the project community. In most cases, if the project is legit it will have a thriving community, as such someone would have reviewed the project code. Other considerations include things like whether the project founder is traceable or the tokenomics. All these are potential red flags that could save investors the heartache from losing their funds.