How To Protect Yourself Against Scam Crypto Projects On The KCC Network?

This article is aimed at giving basic guidance to assist DeFi users and investors stay safe.

With the market’s value skyrocketing over the last year, cryptocurrency has become a favourite target for hackers and scammers.

Scammers are discovering new methods to take advantage of the exciting financial developments made available by DeFi as more people get interested in them.

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 legitimate inventions from fraudulent tricks.

How can you protect yourself from a cryptocurrency scam? Before you go all-in on Bitcoin, Ethereum, or other digital currencies, here are a few things to think about.

Audits of Smart Contracts

Auditing is a term that comes up frequently in discussions about smart contracts and DeFi. The purpose of audits is to ensure that the code is safe. Many developers launch their code without any audits, despite the fact that audits are an important element of smart contract development. The risk of utilizing these contracts might be considerably increased as a result.

One thing to keep in mind is that audits are costly. Legitimate initiatives will normally be able to afford audits, whereas scam projects won’t.

So, if a project has passed an audit, does that mean it is fully safe to use? Not at all. Audits are important, but no audit can ever guarantee complete security. Always keep in mind the dangers of putting money into a smart contract.

What Method Is Used To Distribute The Tokens?

When investigating a DeFi project, token economics is an important factor to consider. Scammers can make money by raising the token price while keeping a large amount of it and then selling it on the open market.

What if, say, 40–60% of the available supply is sold on the open market? The token’s price drops, losing nearly all of its value. While some may not regard a large founder allocation as a red indicator in and of itself, it can lead to problems.

You must also examine how the tokens are distributed, in addition to the allocations. Is it done through a private pre-sale open exclusively to insiders who receive a fantastic price and then promote the initiative on social media? Is this an ICO (Initial Coin Offering)? Are they launching an Initial Exchange Offering (IEO) in which a crypto exchange stakes its reputation? Are they releasing tokens through an airdrop, which will almost certainly result in a lot of selling pressure?

When it comes to token distribution strategies, there are a lot of factors to consider. In many circumstances, obtaining this information is challenging, which might be a red signal in and of itself. However, if you want to get a full view of the project, you’ll need this information.

Are the founders anonymous?

The freedom of anonymity that the Internet may afford is deeply embedded in the crypto world. After all, we’ll almost certainly never know who Satoshi Nakamoto was, the individual (or group) who invented the first cryptocurrency.

Teams with anonymous founders, on the other hand, represent an extra risk to consider. There’s a significant risk they won’t be held accountable if they turn out to be scammers. Even while on-chain analysis techniques are becoming more advanced, it’s still different if the founders’ reputations are attached to their real-world identities.

It’s important to keep in mind that not all projects conducted by anonymous teams are frauds. There are several examples of respectable programs and projects with anonymous teams. Even so, while assessing projects, you should think about the impact of team anonymity.

Activity for Development

Developer activity is another thing to consider.

Therefore, 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 definitely help. This will most likely reveal whether the project is malicious.

You may also have a look at the development activities. Is new code 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 Is The Risk Of An Exit Scam?

Yield farming (also known as liquidity mining) is a new technique for DeFi tokens 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 put their money into smart contracts in exchange for a piece of the newly created tokens.

I’m sure you can see where this is going. Some projects will just take the money from the liquidity pool altogether. Some will employ more advanced techniques or have large pre-mines.

Furthermore, new cryptocurrencies are frequently listed first on automated market makers (AMMs) like Kuswap or MojitoSwap. If the project team is already providing a significant amount of liquidity for the market pair on the AMM, they may simply remove it and dump the tokens on the market. As a result, the token price usually drops to zero. This is known as “a rug pull,” since there isn’t much of a market left to sell in.

What Is The Project’s Aim?

The great majority of crypto assets, on the other hand, do not add anything to the table. Sure, there’s a lot of interesting new technology-after all, that’s why we’re all here! Many new projects, on the other hand, try to cash in on the DeFi hype without even attempting to innovate.

Therefore, one question you could have is whether or not this project tries to do anything unique. Is their effort an attempt to contribute to the new digital economy? What sets it apart from the competitors? Is this a one-of-a-kind value proposition?

Conclusion

DeFi scams exist, whether you wish to participate in the wild west of yield farming or just use decentralized protocols to swap and trade. Hopefully, these basic criteria will make it easier for you to identify fraudulent projects and harmful ones.

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