Understanding CeFi, DeFi & Yield Farming - Part 4
Hello everyone, hope you all are doing good? I'm back with the Part 4 of this amazing series, Understanding CeFi, DeFi & Yield Farming. If you haven't read the Part 1, Part 2 and Part 3, I strongly suggest you that by clicking here for Part 1, here for Part 2 and here for Part 3. In today's article we would be looking at the risks involved in DeFi system..
Yeah, the DeFi system is not without risks. I will be letting you in on some of the major risks faced in the DeFi systen. Below are some of the risks involved the DeFi system;
- Private Keys Issue
- Stability Issues
- Liquidity Issues
- Regulation Issues
Private Keys Issue
This is a major risk faced by every DeFi users. Our Private keys give us total control over our wallet, and if lost, stolen or forgotten, your wallets and all the funds in it, are gone for good, because it can't be recovered. We have heard of cases where people had some coins, and after some years, the coin pumps massively, they try gain access to their wallet, but can't because they don't know where they stored their private keys. I have experienced this myself, I'm glad I only had $5 worth of BNB back then, as I was a newbie and didn't know the importance of my private keys. I lost it and couldn't have access to my wallet again. I wasn't pained then, because it was only $5, but my $5 then, is now worth $600+, I feel the pained now(😂). This is mighty risk faced in the DeFi system.
Stability Issue
This is yet another major risk faced in the DeFi system. There is a stability issues which some major platform faces, which is scary and may result to people getting scammed because of nervousness. Early this year, PancakeSwap had an issue, as they were hacked and the hacker displayed a feedback on PancakeSwwap official site, directing users to a page that will result to them submitting their private keys and once they do, their wallets are wiped clean. This is another risk faced in the DeFi system.
Liquidity Issues
This another risk faced in the DeFi system. Liquidity is provided by the users through farming, staking, etc. So, price of assets traded are depended on users, and users with majority of the stake in the liquidity can easily manipulate the price at his/her will, which is very unhealthy.
Regulation Issues
This another major risk faced in the DeFi system. Since, there's no central authority controlling and regulating the operations carried out in the DeFi system, there are some people who are abusing it greatly for their selfish gains. Criminals can easily perform money laundering as no one needs KYC before transactions can be carried out. Also, there are many phishing websites and platforms which wants to get you to believing they are the official website, by so doing, gain access to your wallets, if you fall into their traps. No one confirms nor checks the identity of users in the DeFi system and that's why we are still facing this issue till this very day.
I hope you all found the article interesting and exciting. Do well to share your thoughts about the article in the comment section below. Thanks.
hello @menoski,
one of the things that people don't get used to is that security is a very personal responsibility and that if we choose to have control of our money the loss of access is also our responsibility, I remember a saying that I mentioned that the web was designed to work not to be secure this is because people forget passwords or lose them so it is more important to regain access than to have 100% security, on the other hand the same dynamic of all currencies makes money laundering very easy, freedom has its good sides and bad sides, you can't have freedom without the bad side, like scams or money laundering.
Hi @menoski
Unfortunately you lost that BNB, which at $5 is not much, but at the current price, well, it means something.
I think that every investment, such as DeFi, has its risks, you have to know that everything related to Blockchain and cryptos involve a great responsibility of each one about their money, take care of the keys, see well a project before investing, are aspects that can not be neglected.
So bad I haven't been following up on other series of your amazing publication but I must admit reading through this is really amazing. One thing that I love in this when it comes to blockchain is that with all this cryptocurrency is still uniting as one. Being Cefi, Defi and Yield farming, the blockchain is still scaling, this is just what I want to hear. Nice content
Well said article. I think nowadays many people are afraid of the rate of scam exist in the defi world and so this only is enough to discourage them
Thanks for sharing DeFi has it flaws as well as every invention has it flaws, such risk can be minimized, before investing in any DeFi related project its best for a user to make appropriate research.