DeFi (Decentralised Finance) continues to amaze and enthral the markets with the promise of democratized and disintermediated financial services driven by smart contracts and accounted for on distributed ledgers. Total Locked Value in DeFi projects has exceeded US$15b as of mid-December 2020, up from less than $1b at the beginning of the year.
Trending very obviously are decentralised exchanges (DEXs), with many having entered the space in recent months, most seeking to offer similar services to the market leader Uniswap. Other projects have emerged offering compelling revenue models and accompanying tokenomics. Several of these projects have gone up 10X to 1000X or more, and have sustained high valuations, as their staking and liquidity farming offerings promise compelling returns.
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Of course the crypto space in general and the DEXs in particular have provided fertile ground for nefarious players to exploit the more vulnerable investors. Caveat Emptor (let the buyer beware) is a valid catch phrase in DeFi token investing, although the more modern acronym, DYOR (do your own research), is more commonly expressed in many chat groups.
Scams, generally referred to as rug-pulls, abound, at times outnumbering the legitimate projects. The basic modus operandi of a rug-pull is to publicise a new DeFi project, usually offering outsized yields on staking and farming programs. A whitepaper and smart contract largely plagiarised from a legitimate project, a front-loaded marketing budget are common attributes.
These scams also include aggressively managed social media and chat channels that are populated by bots or airdrop seekers, and where anyone questioning the developers on issues such as anonymity, locked liquidity, or contract audits is instantly banned from the channel. Scammers prey on naive investors who get caught up in the hype and fail to detect the ruse.
Lately they have become more sophisticated in their tactics, engaging in identity theft (fake KYC) to establish credibility, or contract audits that only look at external threats, ignoring internal ones built in for the owner can exploit. Sometimes scammers replace the audited contract with an unaudited one that contains malicious code enabling them to remove all the contract funds, leaving the depositors holding the proverbial (and now valueless) bag.
Rogue developers deploy smart contracts with trapdoors including mint-functions and other exploits – unsuspecting investors deposit ETH and tokens into these contracts, expecting to be protected, but are divested in the final act whereupon the deposited crypto is withdrawn via the exploit, or a large number of supposedly time-locked tokens are dumped on the market. Social media and telegram channels are then deleted or muted, and the scammers make off with the stolen funds.
Sadly, this is a relatively common occurrence. While investors are well-advised to thoroughly research this and any type of crypto undertaking, the existence of and ease by which scammers regularly rob investors risk paving the way for over-compensation by regulators and law enforcement. If history is any gauge of how that plays out, it is usually the small fish and victims more put-upon, whilst the bigger perpetrators slip away unscathed.
This has set the stage for YFDAI (YFDAI.finance), a new DeFi project that is rolling out an incubator and a DEX in our first generation of projects designed specifically to filter out the scam and weak projects and thereby provide a safe and reputable platform. SafeSwap, our decentralised exchange, imposes strict listing criteria including smart-contract audits, KYC on project principals, track record requirements, and minimum volume and liquidity standards. YFDAI has set aside an initial sum of $50,000 to be used to compensate those among the community, or even outside the community, who bring a project to SafeSwap that meets YFDAI’s criteria and launches or lists. (More on SafeSwap can be seen at
YFDAI’s Launchpad is an incubator with similarly strict requirements. Our crypto professionals will review the project’s fundamentals, including tokenomics, and any previous fund-raising, to determine eligibility. These are to avert scam fund-raising, and to give token investors confidence that they are protected from illegitimate projects and those whose fundamentals are questionable. YFDAI has set aside the sum of $50,000 to be used to compensate those who bring projects to LaunchPad that meet YFDAI’s criteria and successfully launches on the platform. Successful salespersons will be rewarded with the sum of US $2000 payable in YF-DAI tokens and project tokens when the project launches on the LaunchPad. (More on Launchpad can be seen at
As 2020 with all of its ups and downs comes to a close, the DeFi market is in an extraordinary phase of expansion. Projects like YFDAI are raising standards for safe, informed investing, with audited smart contracts, transparency, and strict vetting criteria. Token issuance will be bigger in 2021, the investment community will surely grow more numerous, and the usage of decentralised financial services will surely expand. Self-regulation is a key element of a maturing market, and a small handful of players, among whom YFDAI is a leader, have emerged to make this a reality, thereby protecting issuers and investors alike.
Daniel Stone is a banking and financial markets specialist, with experience in the US, Europe, and Asia. He has recently joined YFDAI as chief operating officer.
All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the author, who is not a financial advisor.
Do your own research before you purchase crypto-currencies. Any cryptocurrency can go down in value. Holding and trading cryptocurrencies is risky.