Like Lego, DeFi works on the basis of multiple elements that can be combined. The elements of DeFi depend on each other, a failure in the interaction can damage your market. Lego pieces allow multiple combination possibilities to create different objects, a same principle that DeFi pursues.
In other words, interoperability in the DeFi economy can become a double-edged sword that directly affects the pockets of its users.
In order to better illustrate this accumulation of vulnerabilities and their potential danger, we are going to use the MakerDAO platform, one of Ethereum's most successful DeFi projects, as an example. In this sense, it is important that all smart contracts are subject to public audit and have reward programs, thus ensuring the highest security standards. The function of smart contracts from platforms such as MakerDAO is the possibility of generating collateralized tokens. These have the particularity of being assets that are anchored to other financial assets, whether they are cryptocurrencies or fiat money.
Because the token is just the representation of an asset on a foreign blockchain, the value of a stablecoin like DAI is highly dependent on the assets it is anchored to and their collateral. These are not the only financial risks to which a user who owns anchored tokens is exposed, since some stablecoins such as Tether or USDT have physical money reserves external to the blockchain, where the fiat money that supports the creation of these assets is kept. digital. Stablecoin owners must now trust the transparency and accountability of these companies, who are the ones who manage the outflow and inflow of dollars into their reserve fund, and hope that their money will not be confiscated with a court order. Oracles also play an important role in stablecoins, since they are the essential elements that provide information from the outside world to the blockchain.
Smart contracts release or settle a negotiation depending on the information that comes from the physical world, for which they resort to oracles to verify data that is not found on the blockchain. Oracles can obtain bribes from users to manipulate information, as well as malicious entities that introduce false data to the blockchain. But things get even more complicated if we realize that tokens like DAI are very important pieces for decentralized finance and that they have the ability to collapse the entire market if a serious error occurs in them. The lender earns an interest rate on the deposited tokens, as well as having the opportunity to withdraw other assets from the platform.
This tier adds new smart contracts that can be vulnerable to technical errors and hacker attacks, as well as financial risks of volatility and speculation. As if that were not enough, cryptocurrency loan applications tend to interact with other platforms, to generate better interest rates or offer reward tokens to their users. The idea of ??these finance farmers is to deposit and request loans in DAI on these platforms, an activity that allows them to receive reward tokens that accumulate an annual return of 100%. As you can see, it is an intricate chain of operations that runs through the DeFi economy, where different smart contracts, oracles, tokens and governance protocols take an active part in this investment.
Money in DeFi travels an intricate path full of obstacles and chasms, but many of its users are not aware of how serious these vulnerabilities can be and that their money is in danger. This is not an isolated case, since other financial projects in Ethereum have suffered hacker attacks, vulnerabilities in smart contracts or have been scams infiltrated in the heart of the ecosystem. Each of these mistakes erodes DeFi's reputation, as well as worries those in this market. No wonder, since DeFi applications currently have more than 7 billion dollars deposited in their smart contracts.
It is not only the goose that lays the golden eggs, but also the money tower that threatens to carry everyone away if it collapses due to a critical vulnerability.
