Did DEX succeed?Fast-growing cryptocurrency exchanges could hurt DeFi investors

With the rise of various meme coins in the past year or so, a large number of decentralized exchanges (DEX) have continued to emerge, seeming to accumulate a large amount of liquidity overnight.Therefore, some security companies have started question The overall security and transparency of these platforms in recent weeks.

For example, DEX ShibaSwap, it has been able to take advantage of the budding style of Dogecoin (dog) Using the native token Shiba Inu (SHIB), it has recently been able to accumulate the locked-in total value (TVL) Over 1 billion U.S. dollars Within a day after launch. This has raised questions about the liquidity quotient of DEX, especially because the design of the protocol was given a low score by the platform examiner DeFi Safety.

The company initially Score ShibaSwap’s native security guarantee standard is only 3%, which is far below the platform’s minimum pass threshold of 70%. However, after Certik’s audit, the company had previously cooperated with other companies in the industry such as Neo, Crypto.com and Ontology. DeFi Safety Increase ShibaSwap score to 35%.

Solidity developer Joseph Schiarizzi recently release Severe warnings about staking contracts on such untested platforms have also attracted people’s attention. Reiterate Written by DeFi Watch analyst Chris Blec.

Blec stated that, for example, if the migration function of ShibaSwap’s smart contract is still under one person’s control, then the contract owner may choose to initiate a new “migration function” that allows them to fully control the platform’s token pool.

User beware

In order to better understand the security or lack of security of some of these new DEXs, Cointelegraph contacted Red, the community moderator of Harvest Finance, a decentralized yield agricultural aggregator. In his view, since the initial token issuance-now it is production agriculture-a lot of newly launched projects seem to have obtained the ability to mint tokens out of thin air and create market value, only through promises and hype, but very little material. Add to:

“Recently, there have been multiple DEXs in the DeFi field. They promise to be the next best protocol and provide a large number of token rewards in exchange for liquidity, but as we have seen recently, the field is full of scams and’carpet’ Pulls. ‘To lure people in with promises will only steal their funds and leave behind worthless tokens.”

Without directly discussing any projects, Red stated that whenever a large amount of money enters any agreement too quickly, it usually indicates that its users rarely conduct due diligence. “Even if the developer’s intentions are good, any bug in the code that is quickly deployed will seriously affect everyone,” he said.

Antoni Trenchev, the co-managing partner of the digital asset lending platform Nexo, told Cointelegraph that there are two key ways to measure the security of automated currency manufacturers and DEXs:

“If the contract is a fork of a more mature platform such as Uniswap, you need to check whether there are any modifications to the contract. Secondly, how was the original contract verified and established? Generally, it is easy for technical users who are proficient in smart contracts to verify these, but for For everyday users, the process is very different.”

Did DEX artificially exaggerate their TVL numbers?

Individuals who provide liquidity to the platform usually receive generous token-based rewards. According to Trenchev, this operating model has become a powerful tool for many developers to share their success with supporters and users. He added that this method has been able to attract a large amount of capital inflows due to pioneering efforts in lending agreements such as Compound.

In other words, in recent months, more and more users only care about the incentives of things and withdraw their assets shortly after the rewards are issued. “Teams can attract liquidity, but in the long run, the only way to retain liquidity is to create sustainable products, services, and experiences that people want,” says Trenchev.

Ross Middleton, co-founder and CFO of the second-level decentralized finance (DeFi) trading platform DeversiFi, provided his insights on the controversial topic of artificial TVL inflation. He told Cointelegraph that low cost The DEX does have artificially exaggerated its trading volume, because the economic cost of the transaction is very low, indicating:

“Since ShibaSwap is based on Ethereum, traders still need to pay gas fees to exchange, so the exchange volume may be real. The transaction volume can also be driven by the exchange of tokens by the trader to obtain the liquidity required for the DEX The correct token ratio and obtain liquidity mining rewards.”

In Middleton’s view, the real test for ShibaSwap will be whether it can maintain the current transaction volume in a longer time window, especially as the mining rewards of the agreement continue to dry up.

Having said that, he does admit that because ShibaSwap has been able to build a solid brand name for itself — it is rumored to support 300,000 people in the community — people may actually be optimistic about the project, albeit only temporarily. However, Uniswap’s lack of liquidity indicated to Middleton that ShibaSwap may not yet be able to win the heart of Ethereum.

Long-term testing is a must

Although from a security perspective, ShibaSwap is built on Ethereum, so its liquidity provider (LP) will not face the potential security risks faced by side chains or centralized blockchains. However, the fact remains that such an ecosystem has not yet been tested in actual combat.

In Trenchev’s view, the smart contracts of emerging DEXs related to tokens such as DOGE and SHIB really need to withstand the test of time before investors begin to invest their funds. “It’s nice to see Certik conduct an audit, but the audit does not cover everything, so LPs should be cautious,” he pointed out.

Therefore, it will be interesting to see how this field continues to evolve, especially since Ethereum’s recent and upcoming upgrades, the DeFi market is gaining more and more mainstream traction.