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Recognizing Fraud and Protecting Your Cryptocurrency from DeFi Scams

There is a troubling trend: a growing number of fraudulent schemes in the DeFi space that deprive users of their funds.

These schemes typically involve a phishing link to establish a "safe" connection to a DApp, with the aim of stealing the user's funds.

Have you become a victim of a DeFi scam? Disconnect your wallet, freeze your bank accounts, and immediately report the incident to the relevant authorities.

Protect your cryptocurrency from DeFi scams. Learn how criminals can gain access to your wallet and how to detect such schemes.

Introduction to the world of decentralized finance, or DeFi, can be an exciting new beginning for many cryptocurrency users. Financial services without intermediaries, requiring only a wallet and some cryptocurrency to use - isn't this the ultimate goal of digital assets? Many cryptocurrency enthusiasts believe it's a revolutionary step not only for Web3 but for the entire financial industry.

While DeFi has many specific advantages, it also has drawbacks, primarily related to security. One recent trend is the alarming increase in cases of phishing attacks that can leave users with empty wallets.

What is a DeFi scam?

DeFi scams typically involve deceiving users into connecting their wallets - usually through WalletConnect - to malicious decentralized applications (DApps). From there, the attacker can gain access to the user's wallet and execute unauthorized transactions.

In the following sections, we will delve into how DeFi scams operate and provide you with the necessary knowledge to secure your funds.

DeFi Scams: A 3-Step Process

Step 1: Targeting Victims

Scammers use various tactics to lure unsuspecting users. They may impersonate reputable individuals or groups, offering enticing earning opportunities. These scammers often operate through social media, messaging apps, or online forums, targeting users actively seeking financial gains or guidance in the DeFi space.

Many new cryptocurrency users have insufficient understanding of even the basic concepts in this area, let alone the often complex mechanics of DeFi products. Some see cryptocurrency as a "money-making opportunity" and eagerly listen to anyone who sounds knowledgeable. Taking advantage of this, scammers may use industry jargon, often quite absurdly, to impress unsuspecting users.

Step 2: Engaging the Victim

Once scammers have captured the user's attention and trust, they guide them through a series of cunning steps toward an enticing "investment opportunity." These instructions may include providing what appears to be a safe WalletConnect link to establish a connection between the user and the "trusted DApp."

Experienced scammers may even provide a link that resembles the domain of a real company, except for one or two letters. Therefore, as part of their due diligence, users should always verify the website of the relevant organization before clicking on any links.

Step 3: Theft of Cryptocurrency

After the victim clicks on the phishing link and establishes a WalletConnect connection with the "trusted DApp," scammers will repeatedly send malicious signing requests for special smart contracts. Once the user provides the signature, they will discover that their funds have disappeared.

Example of a DeFi scam

To illustrate the process and consequences of a DeFi scam, let's consider the case of a user we'll call Jack. Jack receives a message on WhatsApp from a group claiming to be Binance employees, under the name "Binance UK A18". The scammers claim to provide professional guidance on earning in the DeFi space. Intrigued by the offer, Jack begins communicating with the scammers.

The criminals send Jack detailed instructions and share a "safe link" to establish a connection with his wallet. Literally moments after clicking on the link, Jack discovers that all his funds in USDT have disappeared.

Tips to protect against DeFi scams

  • Be cautious with unfamiliar sources.

Avoid connecting your wallet to platforms or DApps you've never heard of before. Your best bet is always to stick to verified applications with a confirmed reputation that genuinely care about their users. Connecting your wallet to a random DApp just because someone told you it could make you a millionaire can lead to irreversible losses. Conduct research, don't click on random links, and use common sense if you suspect any dangers.

  • Don't fall for unrealistic returns.

Be cautious of investment opportunities or projects that promise high returns. Some scammers may advertise blatantly false returns, such as 3% daily, which amounts to over 1000% annually. Such returns are unrealistic. If someone approaches you with an investment offer or proposal that sounds too good to be true, it's better to decline to avoid potential scams.

  • Exercise caution when interacting with strangers.

Determining the true nature of a stranger reaching out to you can be challenging. They may genuinely have good intentions. Just remember that cryptocurrency transactions are irreversible. Be vigilant if someone you just met online starts talking about investments, helping you earn money, and requiring you to follow a set of instructions to earn large sums. If they claim to be an authority figure or an employee of a reputable company, perform a quick verification to confirm their identity online. By following these essential tips, you can reduce the risk of falling victim to a DeFi scam. Stay informed, stay cautious, and protect your crypto assets.

If you have become a victim of a DeFi scam:

  • Disable your DeFi wallet used by the scammers and immediately change your password. If your bank account is involved, freeze your cards and also change passwords.

  • Contact local law enforcement and file a report with the police, providing them with all necessary information. This step is critically important as it can increase the chances of recovering your funds in the future.

  • Report the incident to the platform through which the scammer initially contacted you. Provide them with the scammer's profile name and any other details that may help them prevent fraud with other users.

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