How to Find the Safest DeFi Returns

The Rise of DeFi

The decentralized finance (DeFi) ecosystem has been growing since its inception in 2017. Today there are billions of dollars in Total Value Locked (TVL) within DeFi platforms.

DeFi's popularity has been mainly due to the myriad of high-interest earning options available on many DeFi platforms. But with high-interest rates also comes risk.

Unfortunately, since DeFi platforms hold billions of dollars of investor funds, hackers and scam artists are constantly trying to steal from DeFi.

DeFi vs. Traditional Finance

DeFi is an emerging financial technology that challenges the current centralized banking system.

The main difference between DeFi platforms and traditional finance is that DeFi operates entirely using smart contracts instead of intermediaries like banks, insurers, or brokers.

DeFi utilizes smart contracts on blockchains to provide financial products and services. For example, DeFi can be used to create loans, hedge investments, exchange currencies, and much more.

Decentralized financial systems are built upon layers of abstraction and highly composable components, which makes it easy to create complex financial products.

Since smart contract code runs the show, there are no unnecessary fees and commissions to pay to intermediaries.

The Future is DeFi, But With a Catch

DeFi isn't perfect. For example, although it eliminates intermediaries, as in traditional finance, DeFi doesn't always offer the security we expect from financial products. For instance, while your funds are insured in a bank with FDIC insurance, in most cases, funds used in DeFi are not insured.

Sometimes DeFi platforms contain bugs or gaping security holes that allow hackers or rogue programmers to steal funds from the platforms.

While the benefits of DeFi over traditional finance cannot be understated, research falls on your shoulders when investigating where to put your money to work with DeFi. Researching these DeFi protocols is the crucial first step in not getting scammed or hacked.

Tools That Can Help You Find Safer DeFi Returns

You don't need to be a coding expert or know how to read smart contracts to perform a basic audit. Free tools can help you identify potential issues with tokens, protocols, or projects you're considering for investment.

DeFi Safety

DeFi Safety's quality reviews follow a straightforward, standardized, and established procedure, which allows them to provide reproducible results to anyone who follows the review document posted on their website.

DeFi Safety's Process Quality Review (PQR) allows investors to make informed decisions about which protocols they invest in. Learn more about DeFi Safety and their PQR here.

The DeFi List by DeFi Pulse

DeFi Pulse is a website where you can find the latest analytics and rankings of DeFi protocols. Their rankings track the Total Value Locked (TVL) into the smart contracts of popular DeFi applications and protocols.

Additionally, they curate The DeFi List, a collection of outlets and protocols in DeFi. You can monitor projects like Aave, Compound, and others here on the DeFi List and the current returns available.

Other Concerns in DeFi to Look Out For

More than just monitoring DeFi protocols and projects themselves, there are other concerns that you need to be aware of when interacting with DeFi. For example, Honeypots, Compromised Ads, and Phishing are all additional hazards you should educate yourself about.

Honeypots

Cryptocurrencies are highly volatile, meaning their prices can change dramatically from one day to another. However, if a new cryptocurrency only rises in value without signs of people wanting to sell it, it could indicate a honeypot scam.

Honeypots are where scam artists lure in unsuspecting buyers with an increasing token value, but the only way for them to sell their tokens is through an obscure exchange.

Cryptocurrency is an increasingly popular topic among mainstream news sources, so it's no surprise that we've seen a rise in stories about how people lost money investing in it.

However, just because major publications cover something does not make it legitimate. It can be hard to distinguish between a press release and an actual news article. Honeypot scammers have used press releases to promote their projects quickly.

Advertising (Ads) on Google Search and Websites

The first Google results for a cryptocurrency project may not point you in the right direction; instead, they could be directing you toward a scam.

Google does not always verify the authenticity of websites before selling advertisement space; Google ads shouldn't be taken as proof of legitimacy. The same is true for display ads on websites too.

Look for more reliable sources (like the official Twitter, Facebook, or LinkedIn account) of the project to find the website of the DeFi project you are interested in.

Phishing by Email or Social Media

Phishing scams are widespread in cryptocurrency. They usually involve scammers pretending to be legitimate companies to get people to reveal their private keys.

You should avoid posting specific keywords on social media like "MetaMask," or "Wallet Support" because they may attract spammy replies from scammers trying to steal your wallet address (or whatever else).

Scam artists often pose as real celebrities on social media. For example, they may claim they're offering assistance or advice but then ask for personal information or cryptocurrency.

Some scam artists create fake YouTube accounts and solicit donations from unsuspecting viewers. For example, someone lost $1.14 million to scammers impersonating Michael Saylor, the founder, and CEO of MicroStrategy.

Consider reading our SIM swap safety guide to help prevent many phishing attacks from draining your DeFi funds.

DeFi is the Future, But More Work is Ahead

These days we can't go a week without hearing about millions of dollars stolen from another DeFi platform. DeFi platforms must improve their security and safety levels before mainstream adoption will happen at a grander scale.