SmartDex - Fooling Users Into Paying Fees Is a Red Flag

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?

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.

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.