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Report: Be wary of several "non-financial" risks in the DeFi market

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In addition to the obvious financial risks, DeFi users also need to be aware of some technical risks.

Rhythm BlockBeats news, December 11, according to a data and research company BraveNewCoin in November report It shows that there are some serious "non-financial" risks in the process of decentralization of the current financial economy. The financial risks involved in DeFi have already been documented, but the new report delves into more technical issues related to Ethereum-based smart contract financial protocols.

This report by BNC analyst Xavier Meegan begins with scalability risk, someone who touched DeFi this September familiar risks. Network congestion leads to high gas fees and failed transactions, which can cause DeFi protocols to malfunction or not work as expected.

At the peak of liquidity mining, the average transaction fee on Ethereum soared to a record high of around $15 . Using “3.12:” as an example, the report reads: “We saw this happen on Black Thursday, March 2020, when bidding on collateral at MakerDAO’s (liquidator) inaccessible auction resulted in collateral being sold for free "

Flash Loan ( i.e. assets can be borrowed and repaid in the same transaction): Security concerns abound, notable examples this year include bZx, Opyn, Harvest Finance and most recently Pickle Finance.

Oracle risk: due to price Manipulation of information by suppliers or malicious actors, smart contracts may receive false or fake information about off-chain value or asset prices, and therefore also pose risks.

protocol design issues: protocol design If there is a problem, it can be manipulated to benefit cybercriminals, and it poses a risk. Composability is a good example, where a DeFi protocol needs to depend on another protocol to function. The report noted that the concept of "money Lego" interconnected within the ecosystem posed further risks;

“DeFi is currently The interconnectedness of the 2007-08 global financial crisis (GFC) is very similar to that of traditional finance."

< span style="font-weight: bold;">Too Centralized: If the protocol is controlled by a centralized intermediary, or the governance power is held by several giant whales, then there are also centralization risks associated with DeFi. Uniswap’s first governance vote is a great example of how a small number of participants can try to control the outcome. Additionally, the majority of stablecoins used in DeFi are controlled centrally by companies.

Over-reliance on Infura: rely on Infura as Node infrastructure operators are also at risk, as the industry discovered during the mid-November glitch. Infura provides a cloud-based Ethereum client so that users don't have to run their own nodes. "An estimated 63% of the Ethereum community use Infura as their preferred way of interacting with the blockchain. What if one day Infura doesn't function as intended?"

The report also pointed out that there are other risks, such as economic incentive risk, financial literacy blindness risk and regulatory risk. The conclusion given by the final report is that there are many more risks to be found, making the entire ecosystem sound like a giant financial nightmare.

Rhythm BlockBeats believes that the entire encryption market is currently in an experimental state and has not yet been fully accepted by the traditional market and the public However, many ordinary investors outside the encryption field still have little knowledge of encryption technology and the market. As a newer attempt in the encryption market, DeFi's infrastructure is not yet sound, and there are bound to be risks. Investors should confirm that they have financial knowledge or risk-taking ability before deciding whether to join the DeFi market.