How Investment Firms Can Mitigate Risks Associated With DeFi

From retail crypto enthusiasts jumping in headfirst to institutional giants dipping their toes in, decentralized finance (DeFi) is quickly becoming a valued aspect of the new financial revolution.

However, shaken by recent market turmoil in the wake of Covid-19, DeFi’s true test has only just begun. If it succeeds, it’ll emerge stronger than ever; if it fails, it could sound the death knell for DeFi. With risks abound, institutions need to be fully prepared before diving into DeFi.

As previously reported by Cointelegraph, in one year alone, the total ETH value locked in the DeFi market has crossed the $1-billion mark. With the level of activity clearly increasing, DeFi is on track for mainstream popularity. However, security, interoperability and usability continue to hinder mass adoption.

DeFi encompasses a vast array of crypto offerings. From digital asset creation to Ethereum smart contracts facilitating the production of decentralized apps (dApps), enabling lending, borrowing and advanced trading. At its core, DeFi strives to become an alternative to the financial system – serving crypto-centric trading on decentralized exchanges, enabling crypto loans collateralized by other cryptocurrencies, and providing the ability to earn interest on crypto holdings via multiple lending markets. The possibilities are seemingly endless.

It’s not without its altruistic aspects either. Conservative estimates place the number of those without access to financial services at 1.7 billion worldwide this is one of the greatest motivations behind the rise of DeFi. But despite well-intentioned ideals, some…

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