DeFi investment in the KCC

How to decide if a DeFi investment is secure or not.

Translation from spanish original

First of all, we have to know that a fork is a project that clones the fundamental aspects of a previously existing one. It clones the financial functioning mechanism in the fundamental aspects, sometimes it is cloned exactly the same, including errors and vulnerabilities in the code. However, these protocols can surpass the original in operation, but this, for it to happen, needs three fundamental pillars, which are:

Now, we need to know what is a governance token and what it is for. Since 2016 when TheDAO emerged and especially since 2020 one, a series of decentralized and autonomous organizations have gradually emerged, where their members make decisions based on deliberations, proposals and voting processes. These organizations are called DAOs, decentralized autonomous organizations, which operate on the blockchain and in principle are not subject to any standard legal regulation. The vast majority of DAOs arise from a centralized team, offering or looking for different products and / or objectives to later adopt a more decentralized structure. In the case that concerns us, the DEX Mojitoswap, arises as a protocol that has a team that manages the entire protocol and that with the payment of commissions in its governance token is granting a promise of participation to the holders of its MJT token.

This entails certain risks, since these protocols that pay in their governance token can suffer from so-called mercenary liquidity. As long as they pay with their governance token, they will attract users and liquidity, when it is over, users and liquidity will leave with their funds looking for commissions and rewards somewhere else. That is why these protocols provide solutions and products more varied than those offered by DEX AMM such as Uniswap, providing lottery and sweepstakes programs, launchpads, etc. and thus attract liquidity permanent and recurringly. We also have to study your documentation, know if it is audited, who has carried out the audit and what vulnerabilities it has and has corrected, what has been the team’s response to that audit, etc. etc.

Given this we have analyzed the product and understood it, then we have to see who is behind it and its community. In the case of Mojitoswap, the developers are not entirely public, but it is known that some of them are developers in Kucoin, so we have a relative security factor pulling good. That a project is managed by an anonymous team is a little red flag but it does not necessarily mean that it is a SCAM, the reasons for opting for anonymity range from the security of the physical integrity of its components to fiscal and legal reasons. On the other hand, we have the community. The first thing we have to do is see the community that supports the project, check the telegram channels, discord and other social networks. The more users (other than bots) it has, the more support the protocol will have and the more volume of transactions.

However, without liquidity or volume of users and transactions the protocol would not generate income, so we must see the total value blocked in the protocol or TVL. In addition to TVL, the treasury of it also comes into play, which values it contains and what use it gives it.

It must also be taken into account that all those financial products that offer us a return of more than 70% are either in a launch stage and liquidity is low, which generates many commissions or it will fail sooner or later. Being careful and studying where we deposit our funds is decisive when it comes to bringing our investments to fruition.

Valuing all these factors will help us better understand the complicated and dynamic world of decentralized finance, where unthinkable benefits are obtained in traditional banking but remember, there are also great dangers.

KuCoin Community Chain links and social networks

Social networks

Medium: https://kccofficial.medium.com/

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