DeFi Tips
Magpie’s here to keep you safe!
DeFi has revolutionized the financial land, and sky!, scape by providing open and inclusive access to a wide range of financial services. However, as the popularity of DeFi platforms continues to soar, it is crucial to understand and implement proper safety measures to protect your assets and mitigate risk. Today, we’re going to explore some essential safety measures that can help you fly through DeFi with comfort.
Centralization 🌐
DeFi prides itself on decentralization, as opposed to centralization, while we could discuss the positives and negatives of each, we’re not here to do that today, as most of you know the birds prefer a free and open Decentralized Finance. According to CertiK, the most common security issue in its over 1.700 audits of DeFi projects was that of centralization, projects relying too much on one centralized point of failure that could disrupt or collapse the project.
Creating a centralized pool of tokens puts projects at greater risk of exploits, and users more at risk of rug pulls. This is why it’s important to do your own…
Research 🧑💻
Before investing in any DeFi project, it’s important to research the project to evaluate its credibility, transparency, features, and more.
- Take a close look at whether or not the team is completely anonymous. If not, look up the team members, have they done other projects? Check to see if they are known for rug pulls, pump-n-dumps, vaporware, flavor of the month meme coints, or other sorts of scams.
- Are they audited?
- Is there a white or litepaper?
- Are their smart contracts copy and pasted from others?
- Is it a project that popped out of nowhere, with no online presence and a website that has goals that aren’t related to building or developing a project, but rather focused on growing market cap or growing telegram followers.
- Do the ideas of the project seem realistic and innovative?
All of the above are great questions to ask and can help you identify trustworthy projects and reduce the chances of becoming a victim to scams or contract vulnerabilities.
A small tip: when flying by a website for information, hover over the links on the website. While it’s normal to have some undeveloped sections of a website, if all or most of them link nowhere or to the mainpage and the only working link is for a brand new Twitter account, you may want to keep flying.
Verify Smart Contracts 🔍
Smart contracts are the backbone of DeFi platforms, so to ensure the security of your funds, it’s essential to either verify the code of the smart contracts yourself, if capable, or rely on trusted Auditors to do so and go over the reports. By verifying, you can be more confident in the platform’s reliability and minimize the risk of contract vulnerabilities.
Check out our first audit over here, where we scored a 97 with no major or medium issues. We’ve also got another audit in the works so be on the lookout for that one as well! We take security seriously here at Magpie, and we want to keep you safe too!
Diversify Investments 💰
As with any investment strategy, diversification is key in mitigating risks. Allocate your funds across different DeFi projects, asset types, and platforms. Additionally, only invest what you’re willing to lose, same as with an investment of any type, be those stocks, liquid assets, or collectibles. By diversifying, you reduce the impact of a potential failure in a single project or platform. Doing so also allows you to take advantage of various earning opportunities by not being “all-in” on one thing and balance your risk exposure.
Magpie allows you to fly to all the most popular DeFi chains, where there are a lot of opportunities, but also a lot to look out for, so remember to fly safe and DYOR!
Wallet Security 🔐
The security of your digital wallet is possibly the most important aspect of protecting your DeFi investments, as if someone is able to take it, you lose everything. The wise old owl recommends that you implement strong security practices, such as using hardware wallets and storing your passphrase on a physical object that only you have access to. Don’t store it on your phone, cloud storage, or anything that can be easily hacked by a password leak. Additionally, be cautious of phishing attempts, verify any email you are not 100% sure of, always double-check website URLs for protocols, and don’t connect your wallet to unknown sources promising giveaways or airdrops.
⚠️ Pump-and-Dump, Rug Pulls, and Tax Scams
These are three of the most popular scams in DeFi, and are important to be aware of.
Pump-and-dumps are most often tokens where teams or online influencers have amassed a large portion of a tokens supply and create hype on Twitter, Discord, and Telegram groups in order to convince people to buy low liquidity tokens and once they’re comfortable with the 5–10x the token has done, sell off all of their assets to reap the profits and leave everyone else with nothing. Hundreds of these projects can be seen on dextools if you just go through the history of many meme or trend tokens. They start low, skyrocket up, and then crash just as fast, never recovering and eventually dying out.
Rug pulls are projects similarly created in order to sell off their team tokens. These projects promote users swapping into the next hot meme token and when enough people swap in to the liquidity pool, the contract owner pulls the rug out from under you to so speak, stealing all of the money in the liquidity pool, meaning nobody else can swap and all holders money is lost.
Tax Scams are quite popular these days and many times these projects will create a website, Twitter, Telegram, and Discord group in the hopes of seeming more legitimate, but there is no goal or development for the project. Transactions are taxed usually between 3–10% on each buy and sell in order for the contract owners to send most of that money into the team wallet for its non-existent development. WIth no price movement, users could be down as much as 20% from just tax if they were to buy and then sell the token.
All of the above are great reasons as to why researching is such an incredibly important step in verifying the validity of a project.
Stay Informed
DeFi is rapidly evolving, so it’s important to stay up to date and informed on the latest news, updates, and trends in the space. Be sure to stay up to date on what’s going on in the world of Crypto and known vulnerabilities from websites such as The Hacker News, CoinTelegraph and CoinDesk to name a few. Always be sure to DYOR (Do your own research) as best you can when investigating a new project. Being well-informed allows you to stay ahead of potential risks and make smart decisions.
Magpie is here to help you explore multi-chain DeFi by simplifying and making it easier to access the most popular chains while simultaneously helping keep you safe. As Magpie is non-custodial and permissionless, you won’t need to worry about your funds not being in your control when going cross-chain, helping to protect you from bridge exploits. Additionally, Magpie’s infrastructure does not support tokens with tax fees being swapped in order to provide the most gas efficient route as well as get users the most money for their swaps, which happens to also protect you from tax scams as well as any pump-and-dump or rug pull that utilizes a tax fee token as well, which is considerable.
With seven of the top chains available on the Magpie dApp, we open up a huge world of possibilities and options for our community, but it’s important to keep in mind the above safety tips when exploring the world of DeFi to help keep yourself safe.
