Here Are the Devastating Consequences Projects (and their Investors) Could Face If Token Protection Is Neglected

Although the crypto industry is known for its openness and transparency, it is, unfortunately, also widely known for its security vulnerabilities and widespread losses of investor funds.

As evidenced by numerous exploits, exchanges are regularly targeted. The most obvious reason for cybercriminals to launch cyberattacks against crypto exchanges is that they could net the assets of thousands of users at a time.

This asset leakage issue rightfully raises security concerns as illegal activities become more sophisticated.

In today’s article, we’ll discuss why it’s important to take care of token protection and security in advance (rather than “cleaning up the debris” after the fact).

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For the sake of clarity, we will divide security concerns into internal and external.

Internal security issues, as you can easily guess, come from the people who work in these organizations.

• In fact, recent incidents show that it is a single individual, often the founders themselves, who “quits” the company with investors’ money. This type of security concern is related to what is called the “exit scam”.
• The second internal security issue that can lead to the insolvency of both the exchange and the investors is an unthought-out business model. For instance, this can happen when exchanges’ expenses outpace their revenue and they are unable to obtain financing and immediately make up for that loss by boosting revenue or cutting costs.

However, while the problem with internal threats is the responsibility of senior management, the solution to external threats lies in the technological means of security.

In previous publications, we have looked at omissions that projects often make when listing tokens on exchanges. The following two common attacks are the kind of attacks against which it is absolutely necessary to implement token protection at the technical level.

• Sniping Bot Attacks. Sniping bots are automated programs designed to track and trade liquidity pairs on exchanges, focusing on projects that are about to go public. These bots primarily fish on decentralized exchanges.

This sniping tactic is successful because it allows scammers to buy tokens at lower prices as soon as they appear on an exchange, then pump up the price and allow the project’s community to buy them at their high. As a result, this type of bot attack can dry up the liquidity pool by more than 80 percent during a TGE.

• Front-running. Front-running is the unlawful technique of purchasing an asset based on insider knowledge obtained in advance, with the intent of influencing the price of the underlying asset.

In other words, fron-trunning is the deliberate manipulation of a trade in order to affect the resulting price of the token. Front-running is common in the DeFi space and on NFT marketplaces. The frontrun attack is dangerous as it targets market makers and investors, easing the total amount of the pool as a whole by 10%.

So as you can see, both internal and external vulnerabilities in exchanges can allow fraudsters to steal your money.

The good news is that you can protect them: When elaborating on security techniques, one of the solutions you’d be wise to consider is consulting security experts on these issues.

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The Kaizen Finance team has more than 15 years of experience in cybersecurity and a 5-year tenure in the crypto space.

The Kaizen.Finance platform provides tried-and-test protection technologies to effectively shield a project token against frontrunning attempts and sniping bot attacks that could save at least $250,000.

As part of the token protection services that the platform offers, we apply an integrated token defense during the listing process, which will help protect the tokens from a cybersecurity perspective.