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<p>Decentralized finance represents one of the most rapidly expanding segments of the cryptocurrency market. Its unprecedented growth also goes hand in hand with the potential risks of fraud.</p><p>According to a November report from blockchain analytics company Elliptic for 2021, many of the most prominent hacks involved decentralized finance, or <a href="https://www.investopedia.com/decentralized-finance-defi-5113835#:~:text&#61;Decentralized%20finance%20%28DeFi%29%20is%20an%20emerging%20financial%20technology%20that%20challenges,peer%2C%20or%20P2P%2C%20transactions." rel="noopener noreferrer nofollow">DeFi</a>, projects, with more than $10 billion lost to DeFi theft and fraud.</p><h2 id="header-0"><strong>What is DeFi scam?</strong></h2><h2 id="header-1"></h2><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/3140301d5fc94005a76c278bbab8dc1e.jpg" /><p></p><p>Crypto scams are often malicious schemes targeted at stealing assets from crypto users.</p><p>Generally, crypto scammers try to get access to users’ private information or to trick them into sending crypto assets into compromised digital wallets.</p><p>DeFi scams are elaborate schemes designed for the DeFi sector. Similar to crypto areas, DeFi is also vulnerable to fraud and crime. The space has seen a swift increase of scams over the last year.</p><p>The primary reason is that policing DeFi poses a bigger challenge due to complete decentralization. There are no regulators to enforce and prevent scams because users are in control of their assets.</p><h2 id="header-2"><strong>Types of scam</strong></h2><h2 id="header-3"></h2><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/36f9b4ff03614fa0b125f965052317b1.jpg" /><p></p><p>DeFi scams can be categorized into two groups:</p><ul><li>Scams that involve users transferring assets directly to scammer&#39;s crypto wallets. This type of scam might be rooted in impersonation or fraudulent investments like Rug pulls.</li><li>Scams that involve malicious actors gaining access to users&#39; wallets or security information such as their private keys. Next, the Malicious actor transfers the crypto assets out to another wallet.</li></ul><p><strong>Common DeFi scams can be named as follows:</strong></p><h3 id="strong-defi-rug-pull-strong"><strong>DeFi Rug Pull</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/6dbad5fef5154f54b9a8899b569ba634.jpeg" /><p></p><p>Rug Pulls schemes are currently one of the most popular DeFi scams. In this kind of scam, developers promote crypto projects that appear to be exciting, promising, revolutionary projects. They can gain a massive following on social media and gather millions of dollars from investors.</p><p>When they collect enough money, they simply sell the token and disappear with the money.  Investors will then suddenly be left with valueless tokens and the project will cease to exist. Investors essentially get the rug pulled out from underneath them.</p><h3 id="strong-pump-and-dump-schemes-strong"><strong>Pump and Dump Schemes</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/66738655360b412e8d99d9990ab10492.png" /><p></p><p>In Pump and Dump schemes, the price of a worthless asset is inflated through well-planned marketing. The founders/scammers may use different marketing techniques, namely social media posts, influencers, and false or misleading statements. The hype around this coin is to position it as a hot buy, thus causing FOMO (Fear of Missing Out) in investors.</p><p>As the prices increase, the pump creators dump their assets into the FOMO they&#39;ve generated, resulting in a price crash that leaves buyers holding assets that now have a lower value than they were purchased at. This results in significant and unrecoverable losses.</p><h3 id="strong-phishing-scams-strong"><strong>Phishing scams</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/4df47268557d4f7494bebe1b536d98ae.png" /><p></p><p>Phishing is where scammers pretend to be legitimate companies and gather personal information from their victims.</p><p>DeFi phishing is usually conducted via email, with the bad actor pretending to be a representative from a trading platform or protocol. They will make up an error, such as “Your account has been compromised. Please send over your email and password so we can secure it.&#34; Such tactics can include demanding wallet addresses and passwords or requiring the victim to send over funds.</p><p>Phishing emails might also attach a link to fake websites similar to an existing platform, enticing victims to input their private information only to have it stolen.</p><h2 id="header-4"><strong>How to avoid scams</strong></h2><p>It’s critical to fully understand the risks surrounding cryptocurrency and DeFi before investing in them. Hence, here are some general security measures that you might need:</p><h3 id="strong-two-factor-authentication-2fa-strong"><strong>Two-factor authentication (2FA)</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/9350be4c133b4d6f9bd7bc10517287f2.jpg" /><p></p><p>2FA is a security method that sends a text or email to a verified account, which is required after one inputs their password. Even if a bad actor obtains one&#39;s password, they will need access to a mobile device or email in order to break into an account.</p><h3 id="strong-thorough-research-strong"><strong>Thorough research</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/df222d3160084020bd7591d5c849d7f9.jpg" /><p></p><p>It is considered best to get involved in projects with thriving communities and, even then, do some additional research before taking any action. Listing platforms are another thing to keep an eye on. Investors should also start by investigating a project&#39;s or token&#39;s website, the marketplace where they can purchase it, its white paper, and its listed developers or founders.</p><h3 id="strong-hardware-wallet-utilization-strong"><strong>Hardware wallet utilization</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/7579840399ae4510a83948bd37308521.jpg" /><p></p><p>Hardware wallets are external devices in which users can store their private keys. As the DeFi space develops, more decentralized applications (<a href="https://www.investopedia.com/terms/d/decentralized-applications-dapps.asp" rel="noopener noreferrer nofollow">DApps</a>) are becoming compatible with hardware wallets, allowing users to store their assets in a safe space while still having easy access to their preferred DeFi platforms.</p><p>It’s difficult to recommend storing one’s assets in an online wallet, even if a platform provides that wallet. By holding assets online, users leave their funds more vulnerable to theft. DeFi attacks often result in thousands of users losing millions in funds. By removing a platform’s access to users’ funds, users are strengthening their security.</p><h3 id="strong-double-checking-strong"><strong>Double-checking</strong></h3><h3 id=""></h3><img src="https://academy-public.coinmarketcap.com/srd-optimized-uploads/70bd3a12fb5b4009b29cb0ba46a5fed7.png" /><p></p><p>One of the most common reasons people lose funds is user errors, such as transfers to the wrong address or network. Before initiating a transaction, carefully check your network and address, and complete any required memo fields.</p><p>Make sure to read URLs and only click links from trusted sources. Any message&#39;s sender should be manually verified to ensure that they are a reliable contact.</p><h2 id="header-5"><strong>Conclusion</strong></h2><p>Massive scams are occurring in DeFi with numerous varieties and it is prudent to be aware of them. However, these demerits doesn&#39;t overshadow the numerous benefits of DeFi.</p><p>Especially, with <a href="https://position.exchange/?utm_source&#61;coinmarketcapcom&amp;utm_medium&#61;article" rel="noopener noreferrer nofollow">Position Exchange</a>, POSI holders can rest assured about personal information security. There is no need for users to deposit funds on the smart contract, users can trade straight from their wallets. By using on-chain order books we aim to create an efficient, fair, and trustless financial market that is not controlled by any centralized organization.</p><p>Leveraging the matching engine, Position Exchange offers a <a href="https://futures.position.exchange/USD-M/BTC/BUSD" rel="noopener noreferrer nofollow">Futures Trading</a> protocol with a central on-chain orderbook that ensures transparency, trustlessness, low cost, and high speed.</p><p>When trading with <a href="https://position.exchange/?utm_source&#61;coinmarketcapcom&amp;utm_medium&#61;article" rel="noopener noreferrer nofollow">Position Exchange</a>, you can simply connect your wallet and you are all set. There are no sign-ups required, which increases privacy.</p><p>Furthermore, we aim at creating more autonomy in a decentralized environment when all of our holders can conduct transactions directly with no intermediaries and enhance security.</p><p>With the motto “By the Community — For the Community”, <a href="https://position.exchange/?utm_source&#61;coinmarketcapcom&amp;utm_medium&#61;article" rel="noopener noreferrer nofollow">Position Exchange</a> guarantees the best user experience!</p>

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