While DeFi(Decentralized Finance) has gained significant popularity for its potential to provide more open and accessible financial services, it also comes with certain risks:
Security Vulnerabilities: The underlying blockchain platform (e.g., Ethereum) may have vulnerabilities that could be exploited. This includes vulnerabilities in consensus algorithms or network attacks.
Price Risks: DeFi platforms often involve cryptocurrencies, which are known for their price volatility and liquidity. The value of collateral or assets in a DeFi protocol can fluctuate significantly leading to slippage(a order executed at a price greater or lower than the quoted price).
Regulatory Risks: DeFi operates in a rapidly evolving regulatory environment. Regulatory changes can impact the legality and operation of DeFi projects, leading to uncertainty and potential disruptions.
Protocol Risks: Development to the underlying blockchain or DeFi protocols may introduce changes that affect the functionality or security of existing contracts and applications.