7 Questions You Should Ask Yourself Before Depositing Your Funds in A DeFi Protocol
![](data:image/svg+xml;utf-8,<svg xmlns="http://www.w3.org/2000/svg" width="768" height="526" />)
In order to avoid falling prey to malicious actors in the DeFi ecosystem, we should be able to confidently answer the following questions about each of the protocols in which we choose to invest.
How are tokens distributed?
This is a key question. The tokenomics of the projects can give us a sense of the intentions behind them. When the total amount of the issue has a large percentage dedicated to the founding team, it can be a red flag.
Do you know the anonymous founders?
Although we are not facing an infallible indicator, the fact of the anonymity of those who develop a project can facilitate the escape routes, of course, with the users’ money in their wallets.
Are there audits of contracts?
Much has been discussed about the validity of audits. We have seen cases of non-exhaustive audits, carried out in a testimonial or light manner, with the sole purpose of having that seal. On the other hand, we have seen cases in which, after a “reliable” audit, contracts are modified and frauds are perpetrated.
Is the code “Open Source”?
Key point for a community that favors transparency. If the code of a project is not shared publicly, we are facing a warning that may indicate that there is something to hide…
What does it contribute to the ecosystem?
Generally, DeFi frauds come from platforms that are nothing more than a quasi-exact copy of existing protocols. Innovation, although not a guarantee, usually gives us another peace of mind.
Are the movements in the price of your token suspicious?
When we encounter exaggerated movements in the price of a platform’s token, crypto-signs pucker up. Generally, suspicious movements indicate price manipulation, prior coordination or centralization in distribution.
Does it have a genuine community?
Do those who support the platform in question through social networks have a reliable track record? It is important to verify that those who are within the community of a project are users who do it on their own initiative and do not pursue an extra interest.
4 comments