1. Phishing Attacks run rampant in the DeFi space right now. The scammer usually pretends to be an official entity and tricks people into sharing confidential information.
Example: Using the keyword ‘Metamask’ will attract multiple bots sharing a google form link with the user. The google form asks you to enter sensitive information such as a wallet seed phrase or click on an unknown link.
2. Social Engineering: Scammers set up accounts that look exactly like famous personalities & convince users to transfer their crypto on the promise of better returns.
Example: Someone lost $1.14 million to scammers pretending to be Michael Saylor, the CEO of MicroStrategy.
3. Hacks: DeFi users collectively lost ~$1.57 billion in the first four months of 2022 due to exploits. The developing stage of the space allows for blind spots in security that hackers can exploit.
Example: On August 10th, 2021, Hackers exploited a vulnerability in Poly Network’s codes that powered their smart contracts & swiftly made away with a whopping $611 million.
4. Rug pulls: A project may suddenly be abandoned with the liquidity cleared out. This ‘exit scam’ is being done in different ways:
- Protocol’s Development team may deliberately leave backdoors in their smart contracts so that they can "rug pull" the funds once the time comes.
- Admin access to funds may be hacked or manipulated by the internal team.
The name is popularly associated with dApps providing liquidity to DEXs.
Example: Luna Yield disappeared with ~$6.7 million after two days of launching on Solana’s launchpad SolPad. The team members were nowhere to be found, with all social media handles deleted.
5. Dying projects: A given dApp may ultimately be left to die on the vine as the core team developing it pursues other projects.
Example: GetGems was launched in 2015 as a social messaging app that allowed people to send and receive Bitcoin. After raising ~$1 million through crowdfunding and direct investments, they failed to deliver any initial objectives.