Potential legal crackdown is coming for DeFi token Ponzi

Potential legal crackdown is coming for DeFi token Ponzi

The total value locked in DeFi platforms has exceeded $6 billion and has opened a can of worms for the Ethereum network and its supporters. Most DeFi platforms were built atop Ethereum, which means the activities that take place on DeFi platforms flow through the Ethereum Network. However, this increased transaction activity on Ethereum has led to a spike in the average Ethereum transaction fee—currently at $3.16—and has exposed the flaws within Ethereum smart contracts that can be easily exploited.

The DeFi token Ponzi 

To begin with, DeFi is a flat out Ponzi scheme. Ethereum developers have learned that if they issue a DeFi token, thousands of investors will invest in it because they are looking to turn a quick buck.

Among these investors is Arthur Hayes, the CEO of BitMEX, who has made it clear that DeFi “piece of shit” tokens are treating him well, and that he is looking to invest in more DeFi projects.

Seven exploits so far in 2020

DeFi protocol exploits are also on the rise. Most DeFi projects are hastily made and launched unaudited, which leaves a lot of room for the DeFi protocols to be exploited. Recently, we saw YAM protocol lose $750,000 because its unaudited code had a severe bug that prohibited the platform from successfully running. So far this year, we have seen seven DeFi platforms exploited for tens of millions of dollars.

Will law enforcement crackdown?

Dave Portnoy, the founder of Barstool Sports, has also been vocal about the current state of Ethereum projects. “The thing I like about pump and dumps in crypto is it’s encouraged…I don’t do that in the stock market because those little SEC guys…But in crypto, you can pump and dump all day long, so I’m not going to tell you what I’m going to do until I do it,” ” said Portnoy during one of his live streams shortly before tweeting out the ticker symbol for an ERC-20 token.

Many, if not all, of these tokens are built on Ethereum because it is the only blockchain where its supporters do not care about the future of the network or its technical limitations. This is because its supporters are more interested in illegal security sales that will make them a few thousand dollars per day—not building long-lasting businesses that will be around 5 years from now.

Given the state of the Ethereum blockchain and DeFi, there has been a significant increase in coin/token shills on the internet—including Dave Portnoy—encouraging others to put money into the coins/tokens that the shiller has already bought, most likely so they can dump on the market.

In what seems to be a subtweet for Dave Portnoy of Barstool, blockchain and digital currency lawyer Jake Chervinsky, reminds us that encouraging and promoting a pump and dump is illegal—and that if you provide evidence that you are part of a pump and dump, that you will probably be hearing from law enforcement officials in the near future.

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.

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