Rising Above DeFi Risks

Back to the basics

Jun 16, 2023

Hey, friend!

It’s the 18th edition of Gems Corner. Today, we’ll review the basics to help you understand the various forms of DeFi risks.

Enjoy the gems.

This week has been all shades of tension, dips, & re-awakening: from SEC’s nuisance to USDT’s depeg FUDs to the recent hacks. As much as some degens want to take a break and touch grass, it could also be a learning period & upskilling.

Hence, today I’ll be sharing about understanding defi risks. To be a successful investor, you must understand your risk and chances before plunging into any project. Understanding this will enable you to evaluate projects and narratives better and make wise bets.

According to DeFillama, investors have lost over $6.60b to hacks, rugpulls and other crypto scams. Let’s dive into the different risks users face in DeFi without further ado.

1. Smart Contract Risks

Smart contracts are pieces of code powering blockchain projects. They facilitate crypto transactions and commands. But since humans program them, there’s room for human errors.

Bad actors leverage the vulnerabilities and mistakes of developers to carry out defi exploits like Oracle manipulation, flash loan attacks, & reentrancy. The most recent example of a smart contract risk that was pulled off is that of Study Finance.

2. Regulatory Risks

DeFi is a growing financial industry that the government of most countries are still trying to wrap their heads around. And you’ll agree with me that people will always fight against what they don’t understand - hence most gov’t possess a regulatory risk to crypto projects.

For instance, we are witnessing this in the United States, where the SEC recently sued Binance and Coinbase. If you’re exposed to any platform facing regulatory risk, your assets might also be at risk.

3. Day-Light Scams or Rugpulls

Not all projects with shiny APRs are legit. Some are built by fraudulent players intending to scam their users. You must train yourself to look beyond the bandwagon effect on Twitter and develop your framework for analysing projects.

This risk is most evident in meme tokens, presales and IDOs. The Merlin Rug, for instance, was pulled off by the team.

These are just the major risks; there are still other types of risks numerous to mention. Stay SAFU, friend.

Chart of the Week

The top 50 tokens listed by SEC as securities underperformed heavily in the market this week, showing the effect of regulatory risk at play.

Actionable Strikes

Mint EigenLayer World Builder’s NFT - link
Become a Digital Resident of Palau - link
Guide to MAV Protocol’s Potential Airdrop - link
Waitlist form for Satori Finance - link
Deadline for Ethereum Protocol Fellowship extended to 18th June - link

Project Updates, News & Gems

Uniswap announces v4 - link
Polygon sets to release 2.0 - link
Blur set to increase circulating supply by 40% with $60 million token unlock - link
BOCI Introduces China’s First Tokenized Security - link
EigenLayer Stage 1 Mainnet Launch - link
Factorv2 launches testnet - link
Synthetix now supports stETH perp - link