How Can You Stay Safe While Trading Dapps And Avoid Being Scammed?

A decentralized app (sometimes referred to as a dApp or dapp) is a computer program that runs on a blockchain or peer-to-peer network. Rather than relying on a central authority, it allows users to conduct transactions directly with one another. To obtain and utilize the source code of a dApp, the user must pay a crypto fee to the developer. A smart contract is a type of source code that allows users to perform transactions without having to provide personal information.

Because of this open access, a wide range of financial transactions may be carried out directly between peers. Traditional Know Your Customers (KYC) verification standards such as picture ID, address verification, banking information, or social insurance numbers are not required because there is no central financial institution.

There’s nothing stopping someone from launching a shady or false project. Technically, nothing — as a community, we can assist one another in identifying certain common characteristics that distinguish real inventions from fraudulent tricks.

The following are some of the specific risks posed by DApp:

Make Sure You’re Visiting The Correct URL.

A scammer may create a fake DApp that impersonates a real DApp. They do this by using a URL that is identical to the actual one. In the URL, for example, the scammer may replace an “o” with a “0.” As a result, you should double-check URLs.

Audits Of Smart Contracts

When it comes to smart contracts, the term “audit” is frequently used. Audits are performed to guarantee that the code is secure. Despite the fact that audits are an essential part of smart contract development, many developers release their code without them. As a result, the risk of using these contracts might be significantly raised.

Because audits are typically expensive, reputable initiatives will be able to afford them, but fraudulent projects would not. However, just because a project has been audited doesn’t guarantee it’s fully safe to use. Audits are necessary, but no audit can provide perfect security. As a result, you must be aware of the risks associated with investing in a smart contract.

Activity For Development

So, if you know a little bit about coding, you can look at the code for yourself. The benefit of open-source is that if there’s enough interest in a project, others will undoubtedly help. This will most likely reveal whether the project is malicious.

You may also have a check at the development activities. Is new code being released on a regular basis by the developers? While this measure may be manipulated, it can still be used to determine whether the developers are serious or just looking for fast cash.

What Method Is Used To Distribute The Tokens?

A scammer’s most common method of profiting from a token-based project is to raise the price of their token before selling it on the market. To do so, the founder will need to take a “large founder allocation” (40–60 per cent of the total tokens), and while the appearance of such an allocation isn’t proof of fraud, it should encourage you to investigate more.

Aside from allocations, you’ll want to ask certain questions concerning the project’s token distribution methodology, such as:

_Is it done through a special pre-sale available only to insiders who get a great deal and then spread the word about the initiative on social media?

_Is this an ICO (Initial Coin Offering)?

_Is there a way for a crypto exchange to invest its reputation in an Initial Exchange Offering (IEO)?

_Are they going to distribute tokens via an airdrop, which will almost likely result in a lot of selling pressure?

Are The Founders Anonymous?

When the founders of a team are unknown, there is an added danger. If they turn out to be fraudsters, it’s quite unlikely that they’ll be held liable. Even if on-chain analysis techniques progress, if the founders’ reputations are linked to their real-world identities, you will have more confidence.

It’s important to keep in mind that not all projects led by anonymous teams are frauds. There are several examples of legitimate projects with anonymous teams. When assessing projects, you should still consider the consequences of team anonymity.

About The Exit Scam

Yield farming (also known as liquidity mining) is a new method for DeFi coins to be launched. This distribution strategy is used by many new DeFi projects since it can help the project achieve positive distribution metrics. The concept is that users invest their money into smart contracts in return for a piece of the newly created tokens.

Additionally, new cryptocurrencies have been listed on automated market makers (AMM) such as Uniswap and Sushiswap. If the project team is already providing sufficient liquidity for the market pair on the AMM, they may simply withdraw it and dump the tokens on the market, causing the token price to fall to zero. Because there isn’t much of a market left to sell in, this is known as a rug pull.

Final Thoughts.

Always conduct comprehensive research and due diligence. Make sure you know who the developers are, who is funding the project, and that the use cases make sense before investing. But be aware of the risks. Even if you vetted the project, you might still lose everything. Are you willing to risk your money on this coin, even if it appears to be legitimate? If not, get it out.

Hopefully, this guide will assist you in determining which is legit and which is a scam.

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