What is DeFi?
DeFi stands for ‘Decentralized Finance’ and as the name suggests, it is a technology that uses blockchain ledgers to enable financial services. Thereby, DeFi eliminates the control that banks and institutions have on money, financial products, and financial services. It allows faster and cheaper cryptocurrency transactions globally without a finance firm, credit check, or loan officer in the middle.
The centralized financial system is full of third parties who charge each other fees for facilitating the movement of money. DeFi gets rid of these intermediaries by allowing people, merchants, and businesses to conduct financial transactions on the blockchain. This is made possible by peer-to-peer (P2P) financial networks that use security protocols, connectivity, software, and hardware advancements. In a P2P DeFi transaction, two parties agree to exchange cryptocurrency for goods or services.
All a person requires to access the Decentralized Finance system is an internet connection and funds can be transferred in seconds. This same ease is what leaves people open to some common DeFi scams. Research showed that losses from DeFi Fraud and Theft reached $10.5 Billion in 2021.
Top 5 DeFi Scams
DeFi enables everything that can be done in the legacy banking system, such as lending, borrowing, trading, saving and investing without the need for third parties. In a peer-to-peer environment, there is no central financial institution overseeing the transactions and carrying out checks such as Know Your Customers (KYC) verification requiring documents like photo ID, address validation, banking information, or social insurance numbers. Therefore, if you are scammed out of your crypto, there is no central authority that can reverse the transaction, investigate the scam or report to a regulatory body. There is no way to find out who stole your funds either as the transactions are virtually anonymous.
For more information, please visit https://www.scamadviser.com/scam-reports/scam-trends/4489/top-5-defi-scams-in-2022.
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