I have had a very great interest in the DeFi market and have watched it profusely with awe and wonder at its violent rise to prominence. Now, I'm not at all here to pass judgement. This will be an unbiased piece where we will discuss some of the ways the DeFi market "Could" come crashing down. I see four ways. Let's discuss.
Smart contract failure
This is true for both audited and unaudited protocols and is not to be ignored. A liquidity provision within the protocols could create an error within the smart contracts. This could drain millions at best or EVERYTHING at worse. I have no confluence of this happening yet although it has pushed ETH gas prices up, wink wink, nudge nudge.
Hacks and exploits
Now this, is a real concern. With the rise of technology being readily available, and UN plans to teach blockchain skills to the peoples of developing countries we are seeing the rise of many scams, and even worse, actual intelligent criminals that could enter into the system.
In April, a hacker managed to drain $25 million of the total locked value in a Chinese decentralized finance protocol backed by Multicoin Capital called dForce Network. So imagine how much of a fun time these guys could have with non-audited smart contracting?! Bonanza!
Back to the ETH transaction fees
I'll make this real clear, ETH gas tokens are sky rocketing. What happens if everyone wants to exit this quickly, will it be first in best dressed or those that are willing to pay huge prices in ETH gas? I guess with gas tokens rising, we can see some people do indeed think this will be the case. Some poor guy might be left with the bags.
BTC goes parabolic
We all know BTC's market share has been dropping, this could be because of the BILLIONS locked away in food protocols but one thing is for certian. When BTC moons, everyone else takes a knee. And indications are, at least in my opinion this is only a dip in BTC. But I’m not a financial advisor, and if I were, I wouldn't be talking to you. Sorry.
Conclusion
I do hope none of these disasters come to pass as I do love the concept, if not the current meme driven investing I see right now. If any of these come to pass confidence in the Defi market would flounder leaving no room for this fantastic idea to move forward. Maybe this will become a long-term strategic avenue for some traders, but until we see how all this concludes we can’t know.
Thanks for reading!
