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DeFi and High-Risk dapps: What’s the difference?

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DappRadar

Similar characteristics mean investors need to exercise strong due diligence

All decentralized applications carry a certain amount of risk. High-Risk dapps are not an exception. High-Risk dapps usually show characteristics of a classic Ponzi scheme or similar high-yield investment program. Most promise unsustainably high returns on investments. On the other hand, there are exceptional cases. A recent surge in interest in DeFi brought with it another wave of exit scams and this prompted us to investigate. 

In the High-Risk dapp category, it is usual to witness dapps with surges in the activity which then experience a sudden plunge and dies out within a few days or months. Recent data shows an increased number of new High-Risk dapps being submitted to DappRadar alongside increases in transaction volume and daily active wallets within the category. 

Key Takeaways

  • Increased interest was spotted within High-Risk dapps on two blockchains: Ethereum and TRON.
  • Ethereum’s total transaction volume in Q3 2020 increased by 55% compared to Q2 2020. 
  • TRON’s total transaction volume in Q3 2020 increased by 2,725% compared to Q2 2020. 
  • HEX has been active for more than half a year and the token value has increased by 102%.
  • A few projects labeled as DeFi such as Yfdexf.Finance, SharkTRON, and SharkDeFi turned out to be exit scam dapps.

High return hunters drive category growth

High-Risk dapps are still highly concentrated within the Ethereum and TRON blockchains. There was remarkable growth within both blockchains in October.

Source: DappRadar

In October, TRON and Ethereum’s daily active wallets increased by 248% (4,135) and 10% (58,643) respectively compared to September.

The dapps behind the growth were TRONCHAIN, TRON2GET from TRON and HEX, and Forsage from Ethereum. 

Transaction volume reached all-time highs in October

Transaction volume followed the same trend as daily active wallets. In October, the total transaction volume increased by 79% and 83% in Ethereum and TRON respectively compared to September 2020. 

As depicted in the below chart, it’s quite evident that Ethereum and TRON generated a total transaction volume of $159 million and $280 million respectively in October. 

High-Risk dapps
Source: DappRadar

The dapps behind such growth in total transaction volume in October are the same as the dapps mentioned within daily active wallets. TRONCHAIN, TRON2GET from TRON and HEX and Forsage from Ethereum. 

How is HEX distinct from other High-Risk dapps?

As depicted below in the Ethereum High-Risk dapps chart, HEX, Lion’s Share, and Forsage generated the majority of activity lately. Although these dapps do show the same characteristics as the majority of High-Risk dapps It could be argued that HEX is different.

High-Risk dapps
Source: DappRadar

As stated, HEX is different from the other High-Risk dapps. Firstly, because it has been active for more than half a year. Usually, High-Risk dapps don’t last more than three months. Furthermore, it is not a typical High-Risk dapp structured around hot potato game theory or standard pyramid selling.

Instead, because it integrates its own token with a long period, high return staking mechanic, and strong affiliate marketing. HEX might be better viewed through the perspective of an ambitious attempt to bootstrap a new cryptocurrency and community

In HEX, users swap their principal in ETH for the HEX token and receive both their principal and interest in HEX. Hence, the High-Risk element of HEX stays within the HEX token price volatility. This means that by the time users receive their principal and interest in HEX tokens. HEX itself might be worthless. 

If to look at the current token value it has increased by 102% compared to September 2020 and currently, the value stands at $0.008. Although the price is still relatively low, it has shown remarkable growth during 2020 overall.

High-Risk dapps
Source: DappRadar

Drawing the line between DeFi and High-Risk dapps

Confusion between DeFi and High-Risk projects could be seen within all new projects. This is because high return rates are promised within both DeFi and High-Risk dapps. Yield hunters might quickly fall for immature projects and end up losing money.

There are multiple cases within the blockchain industry where DeFi dapps turned out to be the next exit scam. Back in September 2020, a project called Yfdexf.Finance shook the DeFi category. Yfdexf.Finance exited the market after defrauding investors of $20 million in total funds locked in its protocol.

High-Risk dapps

A few DeFi dapps were also launched on the TRON blockchain in the last few months The first was SharkTron launched back in September which immediately gathered 5,000 daily active users.

SharkDeFi was launched with functionality based on SharkTron. At first sight, both dapps suggested being good additions to TRONs DeFi category that might have helped maximize TRON’s DeFi potential. Unfortunately, both dapps vanished overnight on 28th October 2020 taking the funds of users with them.

High-Risk dapps
Source: DappRadar

It could be argued that it is quite impossible at first sight to draw a line between DeFi and High-Risk dapps. However, there is one thing that is clear: dapps promising a high return in a very short period of time with limited transparency about the risks could be the first indicator. 

Additionally, investors should take into account the maturity of the project and collect further information before deciding on investing.

Conclusions

High-Risk dapps are still highly concentrated within the Ethereum and TRON blockchains. There was remarkable growth across key metrics within both blockchains in October 2020.

HEX could be considered as one of the most interesting dapps within the category. While it carries a certain amount of volatility and risk, the dapp showed continued activity for more than half a year. Additionally, the dapps token HEX increased in value by 102%.

It could be argued where to draw the line between DeFi and High-Risk dapps. The project’s maturity and long term strategy should be always considered while deciding on investing the funds within the dapps.

As always we will continue to monitor developments as they unfold. For now, make sure to bookmark DappRadar and sign up for our newsletter to receive regular updates directly to your inbox.

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