How to Avoid Getting REKT in Crypto and DeFi

Like many things in the cryptocurrency and DeFi ecosystems, getting ‘rekt’ is a slang expression. It is a casual variation of the word ‘wrecked’, and it is often used by crypto investors when someone has made a bad move or bad investment - a really bad move or investment, that results in the investor quickly losing most if not all of their funds.

Unfortunately, as it would occur with such a fast-paced and innovative ecosystem like crypto and DeFi, getting rekt is quite common; it is a combination of several different factors, which we cover in this piece. If it is so common, how can we avoid getting rekt?

Here, we explain the most important steps to avoid getting rekt and make the most out of your crypto and DeFi investments.

Make Sure You Understand the Projects and Their Solutions

With such a wide variety of crypto investment options, each project has its own niche of activity, having identified different market demands – through the identification of problems, needs or desires. It is not much different from companies that seek to bring different offers for different demands, or different solutions to different problems.

Therefore, it is extremely important for investors to make their own personal diagnoses of the market. Try to identify demands that make sense to you. Problems that need solutions, needs that must be met or wants that could be fulfilled and would positively impact the crypto ecosystem as a whole.

Say you want to start off with finding a handful of promising projects, and looking to find out if there is actual value to their proposals. Pick one or two things that should definitely improve in the crypto market, things that are very clear to you. Write them on a notepad, and start researching crypto projects that focus on such demands.

Write down the names and tickers (identification of financial assets in the market, such as ‘BTC’) in the same notebook, building a list of projects that promise to solve that problem. Once you have identified what the project promises to solve, it is important to find out how they plan to do it.
While the ‘what’ can be answered in a few words, being the mission of the project, you must also understand the ‘how’. It can usually be answered on the project’s official website by their whitepaper - both a technical and simple summary of what the project is all about. This step is a very personal investigation, but it is an essential one so you can understand if the baseline values of the projects make sense.

Understand the Tokenomics

The term ‘tokenomics’ can be defined as the aspects of one or more cryptocurrencies that make them interesting for investors - from a purely financial point of view.

You already understand the problem that the project wants to solve and how it intends to do it. It looks convincing, it looks possible, and it looks like it solves real demands.

Now the next step is to understand how the economic part of the token or coin works to be able to assess the risks involved and the potential for growth in the market.

Here are some things to be on the lookout for:

Ranking by Market Capitalization

The higher the market cap, the more solid and accepted by the market the project is. Therefore, as a rule of thumb, the lower the risks, the lower the market cap, the more volatile. In the discovery phase the project usually has greater risks, but the reward is also greater when good fundamentals are found.

Currency Inflation and Fully Diluted Supply

Very inflationary projects tend to lose value in the long term, as inflation generates selling pressure in the future on the part of those who receive the new tokens - factors such as token emission, limited supply and staking rewards factor into account.

Analyzing the fully diluted market cap can help you project the asset’s ranking when all tokens are issued, and therefore better price the opportunity. For example, bitcoin already has 90% of the total units in circulation, so its market capitalization is already 90% of the fully diluted capitalization, which is very good.

Ease of Access and Trading

• Where can the asset be traded?
• How easy is it to access, buy and sell the asset?
• Is it used and moved by users outside exchanges, or does its liquidity depend solely on exchanges by traders?
• What is the trading volume in the last 24 hours?

Price Movement History

A look at the historical chart is indispensable, even if you do not understand technical analysis. Identifying the lowest price points, the highest, and how far you are from both at the present time, can help you better understand the asset’s market momentum.

If you do not like charts, you can search for valuation data in the last 24 hours, 7 days or 1 year. The more you know technical price analysis, the more complete the project evaluation will be, so it helps, but it is not indispensable. Speaking of technical analysis, here’s another important step to avoid getting rekt.

Study and Practice Crypto Trading

Crypto trading, and technical analysis in general, are extremely attractive to newcomers in the financial world because it has a very simple point of entry; just invest your money and sell when the projects are up in value. Sounds easy enough, right? The reality, as some of you may know very well at this point, is far different.

Things that are very easy to pick up and start are usually difficult to master, and that includes crypto trading. Make sure to study plenty and practice different patterns, methods and trades with demo accounts first before going in with substantial funds. It will seem like you are staying behind in the race but make no mistake, you will be glad that you did.

Protect your Crypto Wallets and Accounts

The most common way of getting rekt in crypto and DeFi is not by bad investments, but by not securing your cryptocurrency accounts and wallets properly. There is plenty to cover in as much detail as anyone can handle, but here is the gist of what you should be absolutely on the lookout for.

• Secure your crypto exchange accounts with Two Factor Authentication (2FA), preferably with both email and Google Authenticator options.

• Write down your crypto wallet’s seed phrase on pen and paper, store it safely and never share it with anyone under any circumstances; employees in exchanges and projects will never ask for such details.

• Beware of ‘phishing’, the act of creating fake apps/websites to attract real information from users. Always check if you are on the verified website or dApp, before logging in with your information.

• If a website, dApp or project you have been using for a while is starting to look suspicious, logout and delete all your cache from the pages.

• And of course, do not engage in conversation initiated by random users on crypto social media such as Twitter, Discord and Telegram. They are scammers pretty much 100% of the time.

If you follow all the previous steps, the chances of you getting rekt will be drastically reduced - as you acquire even more knowledge to continue pursuing your crypto ambitions at a safe pace and at a distance from bad situations.