Avoiding Cryptocurrency Scams – Squid Game Token and Other DeFi Risks
DYORor ‘do your own research’ is a concept I think every investor should know about. It’s as close to a golden rule as anything in the world of crypto, but it applies even more broadly to anything you’re planning to invest in from Bitcoin and bonds, to stablecoins and stocks.
Earlier this week, the anonymous developers behind a DeFi project named ‘Squid Game’ token abruptly performed a ‘rug pull’a common scam where the team behind a crypto project takes off with users’ funds. 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.
‘Squid Game’ tokenshat happened and why
Last week, a cryptocurrency called ‘SQUID’ began trading on PancakeSwap, a decentralized exchange. It quickly gained traction among users, many of whom thought there was an association between the project and the recent Netflix hit series, ‘Squid Game.’
The project was not without its red flags, which attentive users were quick to spot. Users who bought the token reported that they weren’t able to sell it, and any official association to the Netflix series was quickly disproven.
Despite the warning signs, speculators continued to buy the token, pushing prices up exponentially before the project founders drained the liquidity pool in minutes, taking off with investors’ funds in the process.
Why can’t these projects be banned or delisted?
Some may askwhy can’t Binance do something about DeFi projects like SQUID? I think it’s important here to explain that blockchains like Binance Smart Chain (BSC) and Ethereum are open source. We don’t have any control or influence over projects that are built on the network. Because BSC is entirely community-driven, governance-related decisions would need to be coordinated by the community. The same is true for any other open source blockchain like Ethereum, for example.
However, our security team proactively launched an investigation as a way to show our support for the wider crypto community. I can confirm we are taking the following actions.
- Working to identify and blacklist address affiliated with the developers
- Deploying blockchain analytics to identify the bad actors
- Providing our findings to law enforcement in the appropriate jurisdiction(s)
I should make it very clear that in cases like this, there is little we can do to recover funds or intervene. Again, Binance is not connected to nor has oversight or control over projects built on BSC.
On doing diligence to avoid DeFi exit scams
The truth is, SQUID isn’t the first and won’t be the last DeFi scam. Over the past year, more first-time investors have entered the markets than at any point that I can remembernd it’s not just DeFi or crypto. On Twitter, stock tickers regularly become trending topics.
We’re entering a period of peak speculationpeople are looking for the next get-rich-quick scheme or 100x opportunity. The truth is, those 100x don’t come along often. And when they do, they usually come with a ton of risk sometimes so much so that the lines get blurred between investing and gambling.
At Binance, we dedicate significant time and resources to creating free educational materials to help our users better understand and navigate the world of crypto. That’s why you should always DYOR. For more reading on DeFi risks, our Academy team has put together a pretty thorough guide on how to spot common DeFi scams.
Why I recommend beginners start with centralized finance or CeFi
If you’re new to crypto, I recommend you start by choosing a centralized exchange like Binance. CeFi platforms still come with risks, but they often have a lot more user protection mechanisms in place. Due to the centralized nature of these platforms, there are more opportunities for remediation if something goes wrong. Larger reputable platforms like Binance are designed to be accessible and easy to use. They act as a great gateway to the world of crypto.
For more advanced users, DeFi features some really compelling benefits. I’ve said before that I personally think decentralization is the future for this industry. With DeFi, anyone can access crypto products and services without relying on an intermediary.
Why wait for a centralized exchange to list a token you’ve had your eye on when you can head over to a decentralized exchange to buy it now without any exchange fees? DeFi removes the middleman, allowing you to make direct transactions with counterparties. However, DeFi can be complicated. You have to manage your own keyslose them and your funds are gone forever. There’s potentially no vetting process or guardrails to keep you from interacting with suspicious projects. The smart contracts that facilitate your transactions may have vulnerabilities that you don’t know about.
To me, the benefits of DeFi far outweigh the drawbacks, but you need to arm yourself with crypto knowledge first. If you have information related to an ongoing scam, feel free to drop our team a line here.
CZ, Binance CEO and founder
This content is sponsored and should be regarded as promotional material. Opinions and statements expressed herein are those of the author and do not reflect the opinions of The Daily Hodl. The Daily Hodl is not a subsidiary of or owned by any ICOs, blockchain startups or companies that advertise on our platform. Investors should do their due diligence before making any high-risk investments in any ICOs, blockchain startups or cryptocurrencies. Please be advised that your investments are at your own risk, and any losses you may incur are your responsibility.
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