How not lose money while investing into DeFi
DeFi is a vibrant community of enthusiasts that will make a word of financial services better. It's still in the beginning of its development, and many possible investors are frightened by the stories when some DeFi participants lose much money while investing into native tokens of the DeFi projects. Indeed we may see that some bad projects cast a shadow over the whole DeFi, it's recently driven the most DeFi tokens down.
At the same time DeFi is going to stay here. If in ICO epoch investors had to trust people behind various projects DeFi is another story. DeFi is a system that waits for the projects that may secure all investors from “rug pull” problems through using smart-contracts. Sooner DeFi tackles it, the better, and the Sushi case is proof for it.
Sushi and HatchDAO cases
The Sushi (SushiSwap) token tanked below $0.9 on October, 6. This poster child of the DeFi sector plummeted from its all-time high of $16 achieved on September 1. The great blow to Sushi was undertaken on September, 5 by its front man, infamous Chef Nomi when the father of the project had pulled it taking “his share” of Sushi in the developers fund and swapped it to Ethereum. A week later Chef Nomi expressed regret for his decision and said that he returned money to the developers' fund but the future of the project seems to be almost totally destroyed. The rocket fall of Sushi price points to the fact that only one careless step of its creator has brought about a devastating effect and nothing can be done. Chef Nomi has delegated its “CEO status” of the project to FTX chief Sam Bankman-Fried but it didn't deliver the positive result. Despite the flash rally of Sushi by 50% on September, 11 at last the token fell into a spin.
Another case is HatchDAO. HatchDAO project fell apart despite it using TrustSwap technique to persuade investors that rug pulling is impossible. Trustswap functioned to lock team funds but the HatchDAO organizers exited by pulling liquidity. This case as well as the Sushi tragedy highlights the acute necessity for the functioning technological decision to fix a “rug pull” issue in DeFi.
The case of Sushi highlights that DeFi needs the shield against the silly steps of any key people behind the projects. To develop decisions to fix this issue is very promising. It may play the role of some kind of DeFi insurance policy effectively introduced by the LID Protocol. Through its platform LID Certified Presales the project launches LIFTOFF Finance service targeted to small DeFi projects. This service can be also called as LID Presales service and it aims to help DeFi to get a right direction of the development. There are pros and cons of buying DeFi tokens, and there's a still high risk game. And what's miraculous that DeFi starts mitigating its risks!
Smart-contracts are at play
The LID Protocol provides an elegant technology that makes sure investors that their interests are secured. LID Protocol reaches to the point in its development that its service eliminates the factor of “rug pull” completely. As it's stated that “LIFTOFF will be a fully automated, self-service platform” enabling start-up projects to draw initial financing while securing investors from the “rug-pull” problem still plaguing the DeFi sector. The smart contracts will automatize the processes of locking liquidity and enable creating the mix of various locking schemes from time-locking to permanently-locking. Time-locking applies for tokens whose allocation is not less than 5%, and permanently-locking procedure implies depositing of tokens into Uniswap liquidity when the tokens are being burnt automatically.
As Carl, CEO of LEAD DEV said at the AMA session on September 29, that LID participates in the DeFi sphere and helps various solid projects (with teams, ready products, the clear cut mission) to get a confidence from investors through Lid Premium service. At the same time “there's a huge number of small and microcap rug pulls that happen on a daily basis. We want to be able to stop those as well.” LIFTOFF is envisioned as wholly self-service that will help microcap projects to draw financing of 500 Ether and less. LID that has a partnership with Halborn and Quill is ready to undertake in each case a token audit if necessary.
The LIFTOFF aims to prevent price dumps, and using such technical decisions to launch any crypto project in DeFi will be at some extent as S&P Ratings, Fitch or Moody's do in the classical world of finance when they deliver ratings for the companies going IPO or issuing bonds. Indeed LID services are able to create a perception among investors, some kind of “DeFi confidence ratings”, when investors can be reassured that there's almost nothing that can compromise their investment and that the relevant DeFi projects have gone through the DeFi due diligence.
DeFi financing for small projects secured from rug-pull by smart-contracts is the only one right way for development of this burgeoning sector. Indeed we come to the point when everyone may raise funds in DeFi and start its own business.
The ICO dream based on personal contacts is being transformed to the perfect automated mechanism enabling investors with free money to pour them into various projects and see less risk and more return than any legacy financial institutions may offer. It's a thrilling experience that we witness the dawn of a new financial epoch, the epoch of DeFi.