Cybercriminals and scammers are exploiting the DeFi craze to swindle people out of their hard-earned cryptocurrency tokens, experts have warned.
Cybersecurity researchers at Sophos have uncovered an ongoing campaign that preys on those unfamiliar with the nascent crypto space that is decentralized finance (DeFi), and slowly drains their funds until nada más are left.
Sophos calls the new campaigns "Liquidity Mining Scams" and has urged anyone involved in cryptocurrency trading to beware of offers that sound too good to be true.
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The rise of blockchain has given rise to so-called "smart contracts", essentially pieces of code that act as intermediaries and allow two parties to carry out a transaction of value, when certain conditions are met, without the need for an intermediary.
With the help of smart contracts, decentralized finance was born, an umbrella term that covers a number of services that are often offered by centralized entities (trading, lending, etc.). When it comes to trading cryptocurrencies in a decentralized environment, there needs to be a liquidity pool for both currencies being traded.
Users are incentivized to provide this liquidity (lending their coins, essentially) by receiving a percentage of the trading fees associated with a specific DeFi protocol, among other things. To do this, they often have to connect their crypto wallets (eg MetaMask) with the DeFi protocol.
And that's where the scammers come in. Sophos says they will create fake apps, fake protocols, or fake tokens and reach potential targets via social media using fake identities. After some innocent small talk, they will try to persuade the victim to provide liquidity for a certain pair of cryptocurrencies that seem to promise big profits.
They will even generate false reports to further convince the victim of huge profits and in some cases even allow early withdrawals. However, they will induce the victim to keep investing heavily in order to earn even more. In reality, however, the target's victims were exhausted until there was nothing left.
Once the targets were taken for all they had, the attackers simply vanished into thin air.