DeFi is one of the core applications of smart contract-based blockchains. It covers a huge part of the current Web3 ecosystem. As of March 2023, the Total Value Locked(TVL) in DeFi was $75 billion, specifying how famous DeFi is in today’s Web3 case scenario.
With the stats provided above, it is quite clear that the DeFi industry has a huge amount of value locked in it. The fact that DeFi has high TVL attracts malicious users with the hope of finding a bug or a vulnerability in the underlying project, which could be exploited to make them rich overnight. However, not every hacker achieves this dream, but some of them can cause vital damage to the protocol.
In 2022, the Web3 community faced a huge setback when Ronin Bridge was hacked for $620 million, marking it one of the biggest DeFi hacks of 2022. These types of hacks impact the whole of the Web3 industry negatively. The risks in Web3 are not only limited to contract vulnerabilities, but one of the fearsome Web3 attacks nowadays is the Honeypot Scam.
What is Honeypot Scam?
A honeypot scam is a trap for the Web3 community, which has caused huge damage to the Web3 world; Honeypot scam is like a fraudulent scheme which is specifically crafted for active DeFi users or DeFi enthusiasts.
This scam involves the creation of a fake DeFi project which seems legitimate and authentic but is actually designed with the intention to loot the users of their funds by making users deposit them. Once the users deposit the funds, the scammers use the intentionally left underlying vulnerability to drain the contract of the deposited user’s funds and use them to their benefit.
Staying Vigilant
In this section of the blog, you will learn about the red flags in a DeFi protocol that stand indicative of it being a honeypot scam. These points will help you take better decisions when trusting DeFi to make deposits. Also, it will be beneficial if you make it a rule to go through these before getting involved financially in any DeFi protocol.
Conduct Thorough Research:-
Does not matter if you are dealing with financial-related activities online or offline. One thing is certain; you just cannot make a decision without going through good research. This research includes looking for information about the team, their credentials and the past experience they have.
Review the project’s code and smart contract.
To follow this step, you should have an understanding of smart contracts and the technical knowledge associated with it. You should examine the project’s smart contract and the code thoroughly and keep an eye out for potential vulnerabilities or anomalies. If you feel the need, you can even consult an auditor.
Keeping yourself updated
Following the latest trends, latest hacks, and latest scams in the Web3 world, which is particularly associated with DeFi projects, can help you stay safe from any unfortunate circumstance. To stay up to date, follow only reputable sources of information.
Start with Small Investments
Advice is often given to anyone starting with the finances irrespective of their platform, be it Web3 be it stocks. When it comes to investments, it is always recommended that you should use minimal funds while participating in any new financial system. This helps analyse and assess the system security better.
Check Project Community and Engagement.
Enquire and learn about the project’s community on all social media platforms currently in trend. On these platforms, look for active engagements, genuine discussions and transparent communication. These also help validate the authenticity and user relation of the protocol.
High-Risk may not be Good.
You must have come across opportunities that promise to give you huge rewards, but you feel there is some sense of high risk involved. These types of schemes, in a major sense, result in loss most of the time. Be sceptical of such projects that claim to return guaranteed profits with very high returns.
Verify the audit Report.
Something which cannot be ignored if you look at the current state of Web3 security. Nowadays, the audit report works as a license or certification of the project is free from vulnerabilities or flaws. This audit report helps users form an informed opinion about the protocol and how inclined the project is towards the safety of the users.
Conclusion
Honeypots have been known to cause some of the major losses Web3 has seen since its start. These kinds of Web3 risks require the user to be well aware and informed about the current industry hacks and scams for a better chance of escaping dangers.
These types of attacks can be prevented effectively only when much stress is given to the education of the common deFi users. This will help users decide better for themselves and have a better chance of defending against common attacks.
Nothing beats the effectiveness of an audit when it comes to smart contract security, and as discussed, the audit report works as a license and certification of the legitimacy of the protocol which the users like to trust, so it is one of the most crucial steps to grow in Web3 and who better to do it than QuillAudits, visit our website and do register for a smart contract security audit if you are looking for one.
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