Cryptocurrencies, DeFi projects: how to avoid scams and unreliable projects?

With the success of bitcoin and ether, more and more cryptocurrency projects are emerging. However, you have to be careful before investing: there are many scams, and not all projects are viable.

For months, cryptocurrencies have emerged from the shadows and have established themselves as a major topic in the news. And it makes sense: innovative blockchain projects are created every day, the price of bitcoin remains very volatile, ethereum is on the way to radically changing the way it mines blocks, and stable coins are fueling controversy.

But with the popularity of cryptocurrencies comes its share of scams and attempted scams. In June, ten million euros disappeared into the wild, in April it was over $ 2 billion, and many unhappy investors lost their savings. In total, the American markets authority estimates that scams have jumped by more than 1,000% since October 2020.

The reason is simple: there have never been so many new projects, and among all this information, it is difficult to see clearly. Differentiating a viable project from an attempted scam can be a real challenge: here are some keys to avoid them.

Use a recognized platform

For Stanislas Barthelemi, a consultant specializing in blockchain at the KPGM audit firm, before deciding to trust a project, a number of things must be checked.

First of all, ” it is better to use a regulated platform, he says. It is necessary to have the status of service provider on digital assets, attributed by the AMF (the financial markets authority, editor’s note), it is really the assurance of being a serious platform. We can refer to the AMF’s whitelist, or trust big players, like Coinbase or Kraken “.

To buy cryptocurrency, it is better to use known platforms // Source: Bermix Studio / Unsplash

However, he urges caution for Binance, the largest crypto exchange platform in the world, which has experienced many legal problems in recent months because of its activities. ” Binance has gone very far in taking regulatory risk. They’ve been making a lot of respectability efforts lately though. The problem remains that we do not yet know how all the investigations about him will end, so it is better not to take any risks. », He advises.

Beware of bombastic promises

You should also avoid being convinced by advertisements for little-known cryptocurrency buying and trading sites, or for new cryptocurrencies. Social media ads aren’t always recommendable. ” The first pitfall to avoid is the strange site, which refers to a company domiciled in a tax haven, or which promises an incredible return, returns on investment of 20%, that kind of promise.

In general, Stanislas Barthelemi advises to stick to the most famous projects, which have the most stability and vision in the long term. ” The two biggest cryptocurrencies, bitcoin and ethereum, are safe values. “And on the other, less well-known projects,” you have to take a different approach. You really have to do your research in this case, check the background of the creators, see if any companies have already invested in the project. “.

It is better to invest in projects that make sense, and a defined plan for the future, he says. In general, it is better to avoid all new cryptocurrencies, which have not yet been certified or in which there have been no investments beforehand. ” When you release big cryptos that have obvious usefulness, it’s sometimes hard to tell if these are projects that make sense, and if there is a high probability that they will fail. It’s important to remember that a large portion of crypto projects fail, and few of them survive beyond their first year of existence.

How to verify projects and cryptocurrencies?

Nevertheless, there are many promising decentralized finance (DeFi) projects, even if they remain more risky. ” If a project is funded by groups or pundits in the cryptocurrency industry, sometimes you can afford to take the risk. “However, it will always be better to focus on investing small amounts, warns Stanislas Barthelemi. ” But if it’s a small project started by strangers, you have to take precautions.

You must first start by looking at the project site, its social networks, and see if the contacts are clearly displayed. The fact of not having a dedicated site (or that it is badly coded, with spelling errors), or the fact of having very few subscribers on social networks and not having contact can be indicators.

Another action to take can also be to look at the source code of the project on Github – if a project doesn’t have one, this lack of transparency is already a bad point. Checking the code requires some technical knowledge, but one can also examine the activity on the account, and see if the developers are active.

It is also necessary to verify whether the projects have been audited. The practice, more and more common, allows the creators of the project to certify the seriousness of their idea. The main auditors are among others Certik, Consensys Diligence, and OpenZeppelin.

Using these tools, however, does not offer a 100% guarantee. ” You must always be wary, and especially not to make impulse purchases », Advises Stanislas Barthelemi.

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