DeFi Risks
Smart contract exploit, oracle manipulation, rugpull — risks of decentralized finance.
DeFi offers high yields but carries specific risks that traditional finance doesn't have.
Main DeFi risk categories:
1. Smart contract exploit • Code error = loss of all funds • $2+ billion stolen through SC exploits in 2022 alone • Protection: use only audited protocols with long history
2. Oracle manipulation • Flash loan manipulates price in oracle → protocol thinks collateral is worth more • Protection: protocols with decentralized oracle (Chainlink)
3. Rugpull • Team developer withdraws liquidity and disappears • Symptoms: anonymous team, fast launch, no audit, promises of too-high yields
4. Economic attack • Exploiting protocol mathematics (not necessarily a code bug) • Beanstalk $182M — governance flashloan attack
5. Impermanent loss • LP positions in volatile pairs
6. Liquidation risk • LTV ratio too high, collateral falls, liquidation
7. Front-running / MEV • Transaction visible in mempool, bot takes profit
Golden rule: "How much can you afford to lose?" — that's how much to put in DeFi.