To play safe in DeFi
Bear in mind - high return means high risk
If you cannot figure out where do rewards come from, most likely you are the reward itself
Generally unreasonable rewards are not sustainable and 99% people eventually suffer a loss
High APY yield farming: - buying farm token or pairing farm token to other assets is most dangerous - the price of farm token is mostly not sustainable - the fall of farm token either bring your original deposit to zero - or drain your LP pair that exchange all your other paired token to farm token
X-to-Earn: - mostly you need initial investments to start to earn - if there's no external income, the economy is purely supported by the later comers - shortage of new comers drags down the demand and price - lower price becomes less attractive to the whole communities - whenever players leave and no longer support the demand - dead spiral as a result causes continuously sell off
Be award of soft & hard rug pull
Soft rug pull: team may reserve a large amount of tokens in a cheap price, dump when the token launches, so to drain the liquidity by selling their token to get valuable token paired
Hard rug pull: team may directly remove liquidity from the pool to make token unsellable
Insider hack: team may hide loopholes in coding and pretend being hacked to steal funds
How to avoid them
always identify what source of economy supports the APY before joining the pool
time can prove platforms’ reputability, those have been running for 2 years+ is safer
platforms with 3rd party audit check on smart contracts reduce vulnerability of hacking
more technically, keep an eye on teams’ token allocation & pooled liquidity lock period
revoke contract approval from each chains' explorer, stop giving spender right to contracts
ALWAYS distribute your funds on multiple platforms to avoid total loss
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