They say “If you want to steal money, don’t rob a bank, open one,” and this has been an increasingly popular stunt recently pulled by crypto scammers as the crypto and DeFi ecosystems continue to bloom.
Recently, Binance CEO Changpeng Zhao who identifies under the moniker ‘CZ’ expressed his disappointment at the turn in which some ill-intentioned individuals had taken, subtracting some points from the efforts going into making the crypto industry more regulatory compliant.
“Because these scams are becoming more commonplace as the DeFi space grows, I’d like to take this opportunity to remind users that DeFi is not without its risks, and we hate to see anyone lose their funds due to scams and other cybercrimes,” he says.
CZ further took to explaining how potential investors can identify and cushion themselves against falling for these investment booby traps days after the infamous Squid Game token rug pull.
Do Your Own Research (DYOR)
CZ highlights DYOR stating that it “is a concept I think every investor should know about.”
While most investors who lose their investments in crypto and DeFi scams are quick to blame exchanges, he advises that it is the investors’ primary duty to familiarise themselves with any project before dabbling with it as this can help them spot all the red flags on time.
“It’s as close to a golden rule as anything in the world of crypto,” he says, “but it applies more even broadly to anything you’re planning to invest in, from Bitcoin and bonds to stablecoins and stocks.”
In answering the question –why can’t spot exchanges such as Binance ban or delist such projects?- CZ asserts that these projects are built on decentralized open-source networks such as Ethereum or Binance Smart Chain, hence exchanges do not have control over them.
DeFi Can Be Complicated
He recommends crypto newbies to start by choosing a centralized exchange like Binance. Centralized Finance(CeFi) platforms are also a great pick due to their tight user protection features.
“Due to the centralized nature of these platforms, there are more opportunities for remediation, if something goes wrong.”
Although DeFi eliminates the middleman (e.g. exchanges) allowing investors to directly invest in a project before it’s listed on mainstream exchanges, CZ warns that they can be “complicated”.
Apart from the risk of losing one’s keys, the shady vetting process keeps investors from knowing who there are interacting with which could be catastrophic.
Given the complicated nature of identifying and preventing rug pulls, exchanges have been identifying and blacklisting addresses affiliated with shady developers and deploying blockchain analytics to identify bad actors.
Furthermore, they have been providing their findings to regulators for enforcement in the appropriate jurisdictions.