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SmartDex - Fooling Users Into Paying Fees Is a Red Flag

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Written by   343
1 year ago

I have just heard about a new DEX on SmartBCH called SmartDex. The developer behind SmartDex is the same person who created the SmartDoge token - which has been accused of trying to fool unsuspecting investors to think that it is the SmartBCH version of the famous Doge meme coin. In fact, there is no relationship at all between the two. However, to be fair, the above accusation would probably have been a criticism better suited to the DogeBCH token on SmartBCH.

Directly after hearing about it I decided to give SmartDex a chance. I generally support every legitimate DEX on SmartBCH, but after having been fooled and rugged hard by BeachSwap, I have become a lot more careful and skeptical about new DEXs - especially if they are created by anonymous developers who are new to BCH.

That being said, I gave SmartDex an optimistic go - because how bad can it be? After only 10 minutes I found an answer to that question. 🙈

Hidden deposit and withdrawal fees

Every new DEX offers amazingly high APRs in the beginning. That's why it usually pays off to be an early farmer. I learned about the existence of SmartDex about 10 hours after its launch in a Telegram group. I was sent the link to the DEX and studied the website.

Everything looked quite normal, nothing out of the ordinary - except that I really, really disliked the user interface. I find it cumbersome and confusing - especially the farming page, but hey, it will probably be improved upon, right?

Where can I see the APRs of the farms?
The APRs can also not be found underneath... Let's click on a farm.
When you click on a farm, you will find an explanation of the reward token locking. Is that all the information an interested investor needs to know?

I read about the fact that 95% of the reward token is locked and is slowly being unlocked over time to prevent price dumps. I'm fine with that. When I join a DEX, I'm usually in for the long run, so I don't mind that the tokens are being locked all that much - even though that significantly lowers the effective APR. More on that later.

I tried to find the APR (annualised percentage rate) of the farms, but couldn't find them anywhere on the mobile website of the DEX. That's when I remembered reading that SmartDex is already on vfat.tools. I checked the APR there and it was quite high.

"Apparently people are hesitant to invest in a new DEX by an anonymous developer who isn't well-known in the BCH community yet.", I thought.

"I'm willing to take the risk to earn the reward."

However, thankfully, I invested only a small amount. I opted for the MIST - BCH farm as I had both tokens in my wallet already. I added 0.1 BCH worth of BCH and the equivalent amount of MIST to the liquidity pool and started farming.

" The rewards are coming in, let's check the Telegram group to see what I missed."

I started reading through the group's messages until I came across the following message.

Deposit fee? Withdrawal fee? Why wasn't that mentioned on the website?!

So apparently, I had been charged a 0.75% deposit fee - and the website did not mention such a fee at all.

For comparison, this is how three other DEXs on MuesliSwap handle the mention of fees.

Transparent and clear. Every fee - even as small as 0.1% is clearly stated. Whenever there is no mention of a fee, it means that there is no fee. This is how you prevent that investors feel scammed. And this is how all DEXs on SmartBCH have operated so far - even the scam DEX BeachSwap has stated deposit fees upfront.

How do you imagine I felt when I learned that not only had I been charged a fee by SmartDex already - I would also have to pay one if I wanted to get my money out of the brand new DEX in less than 5 days...

As I learned from BeachSwap, DEX rug pulls happen rather quickly. I intended to farm for almost a day on SmartDex and then pull my money out to avoid losing money in any potential rug pull. I would then restake some assets once the DEX has been around for some time and there is either a good audit - or I feel like I can trust the DEX and its developer.

However, the high unstaking fee makes it quite expensive to secure my money from any potential rug pulls. And the omission of mentioning any fees felt like this could have been done intentionally.

After I complained about the fees not being mentioned on the DEX's website, I received a "you should have done more research, there is one post in the Telegram group among thousands of other posts which mentions the fees and which should have been pinned but wasn't - there is also a medium article that you should have read before investing."

I insisted that the fees should be mentioned right where you click the button to stake your liquidity tokens. And after a bit of a back and forth, the developer said he would add a link to the medium article there.

OK, that's better than nothing, but having the fees clearly stated there would be even better. And the developer being hesitant to do so is a red flag to me.

I was labeled a FUDder for that, of course, and people replied something along the lines of "what do 0.75% matter when you're earning 80,000% APR?"

Let me explain:

First of all, the APR for the farm I chose was at a nominal value of 30,000% at the time I invested. Not even close to 80,000%.

Second, the APR drops drastically with every additional investment. So the 30,000% APR will soon be 1,000% and then most likely drop further to a level that is comparable to the other DEXs. And once that happens, I would have been better off using any of the other DEXs on SmartBCH for two reasons:

  • No deposit fees.

When you pay a deposit fee, the amount you farm is reduced. Therefore, I'm only farming with $99.25 of my $100 investment. That lowers the APR a bit already. If I unstake early, I will have paid an additional fee - which further lowers the APR.

  • Locked tokens.

I understand that locking 95% of the reward tokens helps prevent price dumps. However, it also reduces the effective APR - as the tokens are just locked and can't be staked or farmed until they are released.

Had I farmed on any other DEX on SmartBCH, I would have received the reward tokens right away and I could have earned additional yield on them.

And who knows what the tokens will be worth when I receive a reasonable amount of reward tokens that I could sell? A drop by 90% - which is not at all an unheard of for a reward token - would lower a nominal APR of 2,000% to 200%. Together with the fees and the fact that the locked tokens don't earn any yield, a seemingly unbelievably high APR may not be attractive at all after taking all the downsides into consideration. Keep that in mind when you see mind-boggling APRs. They may turn out to be significantly smaller than they appear.

All in all, I do wish all SmartDex investors the best for their investments. And for the sake of the entire BCH ecosystem, I truly hope that the new DEX won't turn out to be a rug pull or a scam. However, let me state that again: The omission of the fees from the website and the hesitancy to add them are red flags to me.

And what's the reason for having these fees in the first place?

The official narrative is that this would prevent people from farming and dumping the reward token.

But isn't that what's the token lockup is for already?

What the withdrawal fees actually do is to keep investors' money staked for longer. And if there is a migrator code in the DEX, the ownership could be transferred any time... That would mean a total loss of funds for investors.

I certainly hope that this is not the reason why the fees exist - and I hope it's also not the reason why the developer was so hesitant to clearly state them on the website. However, it does remind me of how the BeachSwap scammer was hesitant to fix a bug which incorrectly displayed the APR of a single token pool way higher than it actually was. Said pool had a deposit fee as well - and people were lured into that pool with a seemingly high APR.

Let's hope that these parallels are just coincidence and that SmartDex will turn out to be legit. I will remain very cautious and won't risk much, though, until I see an audit.

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Written by   343
1 year ago
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Comments

Thanks for posting. I agree that we need to be careful now that the space is opening and new opportunists will necessarily come. I also don't like the doge situation. I almost don't invest because the coin was called doge. I saw this last night and read the post here and the medium post a couple of times before jumping in. Yes, there are things that seem new and somewhat uncomfortable. I am testing it, and so far I'm quite happy with the results. I moved a bch-flexBCH farm from tropical finance to here and with the 5%, etc, it's giving me about 10 times of what I was making there on a daily bases. And that's not counting other 95% being locked. So, my position here is: if it doesn't pull, it's a good opportunity to keep a farm here for a week. Other than that, I think the other DEXes did a lot of things right and some that put them at risk from the business perspective. Each new one learned from the previous one and tried to solve problems. And in each case they are getting better at creating win-win situations where people want to stay. This last one is a bit coercive. But if it doesn't pull, at this stage does seem like a good opportunity. At least for one week. Then, we'll see.

$ 0.00
1 year ago

I agree with your assessment. If SmartDex won't rug pull and the reward token's price won't crash too hard in 6 months when everyone's rewards are being unlocked all at the same time, then farming will give us great rewards. However, I really disliked the lack of mention of the frees and how this DEX's supporters reacted when I complained about it and insisted that fees have to be communicated clearly.

What I'm mostly worried about is that the fee structure favors rug pulls. If this DEX won't abuse it, another one probably will. That's my biggest worry. I don't want another BeachSwap to ever happen again on SmartBCH. But maybe I'm asking for too much there.

$ 0.00
1 year ago

If I understood right, the locked rewards will not be opened all at once. They will be dripped during a period of 3 years. In all honesty I'm not counting with that, I'm just thinking on the 5%. The rest if it's there, it's awesome, if it's not, oh well. Yes, they could have dealt with your concerns with a better disposition.

$ 0.00
1 year ago

Ah, you're right. It's a dripping release.

And I agree. We should only calculate with the 5%. Basically, we have to divide all APRs by 20. 😂🙈

I fear that others won't think about that and will be drawn in by the seemingly high APR.

$ 0.01
1 year ago

The APR is going down fast, as expected.

I'm not sure if it's the best way, but I take the APR, divide it by 364 to get the daily one and there I take the 5%, day by day. As it changes day by day.

With the locked rewards, I doubt many people will leave much in, once the numbers provide a revenue under the closest competition for the here and now.

The other downsize of the penalty system is that I'm not compounding as I would in another DEX.

All in all, I understand that they saw problems and tried to find solutions for them. And the solutions bring their own set of problems. It's inevitable, I think. This is how all systems evolve. Pretty interesting.

$ 0.00
1 year ago

Thanks for the warning, we need investigative work and be careful when we find these red flags to announce them to our channels and websites.

$ 0.05
1 year ago

Thank you so much. I appreciate your comment and your encouragement.

$ 0.00
1 year ago

Good Article,Thank you for your information.

$ 0.00
1 year ago

truly that could have been a no no, but im going to try it out, i have been hearing about it but didint take much research about it

$ 0.00
1 year ago

Had no knowledge of this, thanks for explaining, definitely not cool not mentioning the fee on the UI.

$ 0.10
1 year ago

I have just checked and they added a disclaimer now.

"Important: Smartswap utilizes LP withdrawal fees to disincentivize short term farming and selling.

Read more about the fees here."

I wonder why the deposit fee is still not mentioned. 🙈

And I still believe that the reason they give us is complete nonsense. 🙈

$ 0.10
1 year ago

Actually, you can view the APR in desktop view.. I just stakee a small amount 😅..

$ 0.05
1 year ago

How did you get it to work? When I use my regular web browser, it won't even show the farms.

"Please connect your wallet to see available pools"

$ 0.00
1 year ago

Yes, you can, but the Metamask app doesn't have a desktop mode. But you're right, using a different browser to view the APR would have worked.

I feared that my article would achieve the exact opposite of what I intended. I intended to warn people. Not produce more potential victims.

Anyway, good luck with your investment.

$ 0.00
1 year ago

I can't see it too using my phone. Maybe a computer will work. That's why I only invested a little as I don't know much about the dex

$ 0.00
1 year ago

SmartBCH is going to be crowded and scams are fooling around too.

$ 0.02
1 year ago

Yes. I hope we won't get a reputation as a scam chain like BSC has now. 🙈 After all, these scammers will probably leave BSC at some point - along with the legitimate users.

$ 0.00
1 year ago