New DeFi tokens every day; People are buying without understanding the risk

Like gadgets and software applications, New DeFi-based tokens are developed almost every day. With that, people are attracted to buy such new tokens without understanding the risk. Because PrivacySwap aims to raise awareness about proper crypto investing, we will discuss in this article how risky it is to buy new DeFi tokens without understanding the platform first.

VNExpress reported a recent internet data leaked purportedly linked to a digital currency platform that revealed 17 GB of Vietnamese identity card information. On Thursday, an account named Ox1337xO posted the leak on Raidforums, a platform where hackers frequently display and sell data leaks. The account purportedly had 17 GB of Vietnamese identity card data, including faces, residences, phone numbers, and emails.

A cybersecurity specialist stated they contacted the account, which claimed the 17 GB of data comprised up to 10,000 Vietnamese. Such information leaked is up for selling in return for either bitcoin or litecoin.

Three days later, the blockchain-based platform responded that there is no evidence of leaked information. Furthermore, no Vietnamese IDs were even kept under the network, reports Protos.

Regardless if the incident was actual or not, this news is the best example of why everyone must understand by heart the ecosystem and the specific platform in which they will be investing.

Circling back, what is the purpose of these tokens, and why does a new one keep appearing every day?

DeFi Tokens, the mushroom in blockchain

Before we discuss these new DeFi tokens, let’s go back to basics and tackle DeFi. Decentralized financial apps are taking on traditional banking and finance concepts. They operate on blockchains and are designed to be decentralized.

More so, instead of relying on third-party intermediaries, developers use blockchain smart contracts, mainly Ethereum’s, to earn money and get things done without relying on a third party.

Though decentralized finance has become more secure, efficient, and transparent, the emerging risk of scams and fraud is still rampant. That is why people need to fully understand the platform in which they will be investing, especially if it is a new one.

Moreover, how does it happen that new DeFi tokens are developed and released every day?

DeFi tokens are like mushrooms that just grow and appear anywhere. Aspirant developers who witnessed how Ethereum and Bitcoin grow might have the same goal, to use blockchain technology to earn. In addition, creating a DeFi token is easy and free. In fact, Ethereum had its own tutorial on developing and deploying a DeFi app, which includes instructions on creating your ERC-20 token.

With this cost-free and easy process, scammers might use this opportunity to join the crypto-hype and develop their own apps and tokens that could scam people. At the moment of writing, we saw 30 new tokens listed at coinmarketcap today. These tokens were developed from the past 3 days from today.

“I still want to buy these new tokens as I can see that they will skyrocket like bitcoin. How bad could it be?” Well, it is good to consider hoarding new tokens with low value and price as they could potentially shoot up in the future. However, risks are always present in every investment, so proper knowledge about such platforms’ backgrounds is always advantageous. Remember what Alexander Pope said, “a little learning is a dangerous thing.”

Whitepaper: how important it is to identify a possible scam?

Since new tokens are released almost every day, it could be mind-draining to quickly identify if a platform is legit or not. So, looking for the platform’s whitepaper could help you determine if it is legit. What is a whitepaper?

In order to enlighten you, a whitepaper plays a vital role as it is the project’s essential document. Any blockchain project should include a whitepaper that outlines the project’s aims, strategy, concerns, and schedule. Companies with fancy websites may lack a fundamentally strong concept, as revealed by whitepapers. Read thoroughly to determine if the whitepaper includes other materials, such as financial models, legal problems, a SWOT analysis, and an implementation strategy.

A whitepaper should answer all potential investors’ questions regarding what distinguishes this project from its competitors, how it plans to succeed, and its steps to get there.

Furthermore, to entice investors, DeFi developers should prioritize creating a compelling and transparent whitepaper. A platform that cannot present a whitepaper is a dead giveaway.

Moreover, it is always advisable to thoroughly study the platform before investing. In case you are lured by the platform’s offering, and you want to know if that platform is legit or not, you can read this “The 7 Ways to Spot Scams and Rug Pull Guide” article to investigate the platform by yourself.

To wrap it up

The DeFi ecosystem is known for its permissionless system that lures many developers to start a business with the help of smart contracts. With that, scams and fraud risk also arises, which ruins the reputation of the whole DeFi ecosystem, creating stereotypes to the platform. That is why it is necessary to understand the platform correctly to ensure that your assets are secured and growing.

In addition, this article is written to enlighten people with proper crypto investing and its know-how and not to make you look away from these new tokens as they still have potential. However, being wise is better.

If you want to know more about crypto fundamentals, you can listen to our next DeFi class, which will be up tomorrow, August 25th. Learn with us now and be a wise crypto-investor.

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