Decentralized Finance (DeFi) speculation has been running rampant in recent months, with projects like YAM and SushiSwap gaining hundreds of millions of dollars in investments within days of launching despite having unaudited code and not being that unique.
Essentially, DeFi speculators have proven that they are ready to dump money into any new project or token in the hopes of getting rich quick. Scammers have taken notice of this ignorance and are now capitalizing on it.
A DeFi project called YFDEXF conducted a social media campaign for two days, and in particular they offered all sorts of giveaways for retweets and shares in order to boost their advertising.
YFDEXF quickly gained $20 million total value locked despite having unaudited code. If anyone audited the code, it would have been revealed that YFDEXF is a complete scam, where the developers had the ability to drain all of the funds out of the protocol.
Indeed, that is exactly what happened in the end, with YFDEXF running away with $20 million and going completely offline, and all traces of YFDEXF’s social media presence were deleted. Further, YFDEXF did not pay out any of their giveaways.
YFDEXF is perhaps the best example, so far at least, of how a DeFi project can be a complete scam. We have seen DeFi project’s collapse due to code errors, like YAM, and developers run away with the dev fund, like SushiSwap, but this is the first clear example of a project being designed so that all of the money can be stolen out of the protocol.
DeFi speculators should take this incident as a strong warning to not invest money into brand new DeFi projects that have not had code audits, since such projects could end up being a complete scam like YFDEXF. In fact, the only smart way to invest going forward is to only put money into projects which have been properly vetted by 3rd party code auditing firms.
Unfortunately, DeFi incidents like this, where outright robbery has occurred, brings the day of judgement closer when the Securities and Exchange Commission (SEC) and the government in general will finally crack down on DeFi.