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Arnaud Deblander
Sep 1, 2022 7:00 AM

Yes, little guys, summer is over and it's time for some of us to go back to school! For the others, for everyone in fact, it's also time to start learning again.

The SuperBots team will accompany you in this initiative with a series of articles stamped "Back to school" that will highlight DeFi and web3 concepts!

Are you ready for it ? Let's get started!

The name DeFi is now known to most crypto-enthusiasts but it may not be the same when it comes to protocol security. The security on the DeFi market and especially the risks involved when investing are still sometimes too unknown. 

That's why today we will answer these questions: Is trading on DeFi safe? What are the risks of trading on DeFi ? How to trade on DeFi when you are a beginner ? 

What is DeFi ?

Decentralized finance, or "DeFi", is an emerging digital financial infrastructure that theoretically eliminates the need for a central bank or government agency to approve financial transactions.

Most of the financial services that could be defined as DeFi are found on the Ethereum network, the second largest cryptocurrency marketplace, which also acts as a platform for other blockchain applications to be built on top of it (Ethereum's cryptocurrency, ether, is used to pay transaction costs.

How does DeFi work?

DeFi uses cryptocurrencies and smart contracts to provide financial services to eliminate the need for intermediaries like guarantors. These services include lending (where users can lend their crypto-currencies and earn interest in minutes rather than once a month), receiving a loan instantly, conducting peer-to-peer transactions without a broker, saving crypto-currencies and getting a better interest rate than from a bank, and buying derivatives like stock options and futures.

What are the risks of DeFi trading?

There are several kinds of risks when trading in the DeFi ecosystem but the one that comes up most often in the news remains the hack. This can happen when a flaw is detected in a smart contract, which allows the hacker to break in and walk away with the funds.

Another very important risk is the so-called "rug-pull". This consists of the creation of a project and the listing of a corner with the promise of an amazing return, sometimes with a PRA exceeding several million percent. It cannot be said enough, when it sounds too good to be true, it usually is too good to be true. Rug-pull occurs when the founders stop the project all of a sudden and leave with the funds, leaving the investors with a total loss.

We can also add to this list of risks, the pure and simple scams by means of either phishing techniques or more directly through Telegram. These scammers take advantage of beginners in the crypto-currency world to extort capital from them.

According to the REKT Database application of Defiyield, over a period of one year at the time of writing, more than 43 billion dollars of value have been lost, and 40 just for the Terra case. This figure should be taken with a pinch of salt since a second token was created, but even without that, it still adds up to more than 3 billion dollars stolen in various scams.

How to mitigate the risk?

For a beginner the DeFi ecosystem may seem scary at first glance as it is certainly a bit more complicated than trading on centralized trading platforms such as Binance.

Fortunately, there are hedging solutions, which work like insurance, that you can buy to protect yourself against a vulnerability in the smart contract for example. There are several types of insurance, including depeg risk in the case of stablecoins. This would have been perfect when Terra collapsed for example.

It is therefore possible to limit the risk but subscribing to this type of insurance is still complicated for beginner investors. In this case, it may be better to turn to an all-in-one solution, which takes care of growing your capital automatically, such as SuperBots.

Indeed, SuperBots is a decentralized automatic trading solution that works by means of vaults, each using a specific currency pair and strategy automatically. The only thing you have to do is to connect your wallet and deposit funds, the rest being managed by Smart-Contracts.

Are the vaults secure?

In short, yes SuperBots is secure! A first audit had been done at the very beginning of the launch of the project for all the vaults. Then a bug bounty with ImmuneFi has been set up, which has not been activated yet.

Finally, the solidity code of all the vaults has been audited once again to make sure there are no flaws!

Conclusion

As in everything, trading on the DeFi ecosystem involves risk, without risk it is impossible to make a profit, right?

Nevertheless there are ways to protect yourself against the most common forms of risk on the DeFi protocols like de-peg or a flaw in the Smart contracts.

Nevertheless, the DeFi ecosystem is still complicated to understand for beginners and an automatic trading solution such as SuperBots can be the solution in this case!

Finally, the best advice in my opinion, never put all your eggs in the same basket!

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  • DeFi Trading