While there is so much buzz around decentralized finance (DeFi) and its protocols. There is a space in DeFi that makes the headlines from time to time and this particular space can be described as being dark. The dark space of decentralized finance is dominated by rug pulls, code exploits, hacks, pump & dump, etc. Now, let’s take a look at the different dark spaces associated with DeFi.
No regulatory space
Decentralized finance (DeFi) was created as a tool to oppose the centralized finance (CeFi) structure that is controlled primarily by central banks and governments. DeFi originally translates to financial freedom but to people within the dark space that freedom presents them an opportunity to perpetrate their nefarious and scam activities.
While the scope of DeFi supports decentralization and anonymity. This means developers can build decentralized applications (DApps) without obtaining any license and people around the world can invest in these protocols or deposit funds into the pool without knowing where the project is based or who the developer is.
Scammers have hidden under this umbrella of decentralization and anonymity to start DeFi projects focused primarily on running away with investors funds. Well, you say DeFi means no regulation, in the dark space it means freedom to scam and not get caught.
Scam presales space
The first step in investing in a DeFi project is by buying the token. Presales present an opportunity to invest in a DeFi project from scratch just like IPOs, ICOs and IEOs. With the relative success of past DeFi presales, scammers decided to jump on the train of holding presale events for those wishing to invest in a DeFi project from scratch.
But here the shilling power determines how subscribed or oversubscribed your presale can be, so scam presale developers enlist the help of crypto influencers and shill groups to help them lure investors for a fee of around 2-20 ETH depending on the influencer and shill group.
This is how a majority of DeFi investors first lost their money to the dark space of DeFi including me. I remember having a run-in with Eljaboom because he shilled couple of DeFi presales that later exit scammed. Can it be mere coincidence or are influencers like Eljaboom part of a larger network in the dark space of decentralized finance (DeFi)?
Rug pull developers space
After a successful presale the next step is to set a launch date for the project or launch the project if development has already been completed. For developers in the dark space of DeFi this is where they pull the rug. If you don’t know what rug pull means do not fret we have got you covered with the article “rug a scam term inspired by Uniswap”.
Nowadays rug pull developers are finding new ways of scamming investors despite code audits and locked liquidity. DeFi projects including KPER, KORE and CP3R all had their source code audited by top blockchain firms and their liquidity locked but all ended up still pulling the rug. The most common mode of operation for these rug pull developers is calling the mint function to mint more tokens and then dump these tokens to drain locked funds in the pool.
Code exploiters space
Code exploits has become a very common occurrence with DeFi protocols but some DeFi enthusiasts believe that majority of reported code exploits by DeFi protocols are inside jobs. On Monday, Cover Protocol became the latest DeFi protocol to have its contract code exploited by hackers which resulted in the hacker minting an infinite number of new COVER tokens and dumping these tokens to drain funds amounting to over $5 million.
Although in a turn of events, Grap.finance via a tweet claimed to have recovered and returned 4,350 Ether (3,208,821.00) back to Cover protocol’s pool that was lost initially to the hacker. This move has brought speculations about who the real hacker was, could it be Grap.finance?
In the year 2020 more than $80 million has been stolen through DeFi protocols code exploits and hacks this includes $25 million lost by Chinese lending platform dForce, $460,000 lost by Bancor, $15 million lost by Eminence Finance, $24 million lost by Harvest Finance, $20 million lost by Pickle Finance, etc.
Pump & Dump (PnD) groups and Crypto Influencers space
This space is dominated by the gamblers and speculators within the DeFi space. One of the most famous DeFi pump and dump groups on telegram is Infinity gainz, owned by an anonymous crypto influencer Crypto94 (@Renboy81).
This group has become a paradise for DeFi protocols looking to hold presales or pump their already listed tokens through paid Ask Me Anything (AMA) sessions hosted in the group by Crypto94. There are many of such groups like this on telegram.
Crypto Influencers on Twitter, Telegram and YouTube also fall under this particular dark space of DeFi. These influencers include Bitboy, Chico Crypto, Eljaboom, Ivan on tech, Oddgems, Facemelters, Blue Demise, CryptoLovett, etc. What a majority of these crypto influencers do is buy early, shill shill shill, dump and repeat brrrrrrrrrrrrrrrrrrrrr.
DeFi doesn’t need regulation but I would recommend some degree of sanity is introduced and not the usual wild west vibe it’s currently giving. I think blockchain auditing firms need to live up to expectations by auditing codes correctly while developers need to be sincere.
DeFi enthusiasts and investors on their own part need to stop chasing pumps and think long term in regards their investments. If these few recommendations are put into practice then we will at least have a healthy and thriving decentralized finance (DeFi) ecosystem that may someday dethrone the centralized finance structure.