Risks of Decentralized Finance

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Risks of Decentralized Finance
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Favorite Target of Hackers

• DeFi Development Services applications can manage
  a lot, a lot, of money in their smart contracts.
• This makes them a target of interest to
  cybercriminals, who are on the trail of
  businesses vulnerable to inadvertent attacks.

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Inadvertent or intentional encoding error

• Smart contracts make it possible to execute vital
  operations for these platforms, such as money
  transfer, token custody or credit settlement.
• An error in coding a smart contract could lock up
  customer tokens with no possible solutions.
• Also, malicious entities that make life in the
  ecosystem, could use their contracts and the
  inexperience of users, to get hold of money from
  their customers without them noticing.

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Frauds

• Due to the explosion in popularity of DeFi
  Development, phishing attacks (identity theft) or
  fraudulent platforms that seek to replace the
  original ones have also increased.
• Whether it's downloading a malicious app,
  launching a fictitious token, or sending virus
  emails capable of stealing personal information,
  users in the ecosystem need to be alert to
  potential sources of theft or phishing.

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Errors of Use

• One of the characteristics that most concerns
  users of decentralized networks is that, due to
  the elimination of intermediaries, the
  responsibility for the service is transferred to
  the users.
• If users do not take the necessary measures to
  secure their finances or do not have sufficient
  knowledge to manipulate these assets, it may
  happen that they lose access to their wallets,
  transfer their money improperly or do not operate
  one of these financial services correctly.

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Insider Trading

• And to understand how important the management of
  information and knowledge is in the DeFi market,
  one must also know that this ecosystem is
  vulnerable to a practice known as insider
  trading or trading from within.
• Insider trading is a risk that all markets that
  are just being formed run, since many creators
  and employees of these businesses tend to use
  information that they have access to due to their
  privileged position to make profitable
  investments.

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Accumulation of Interoperability Vulnerabilities

• The DeFi market is considered one of the riskiest
  in the cryptocurrency community due to its
  volatility and accumulation of financial risks.
• Due to the fact that it is an interoperable
  ecosystem, with high composability capabilities,
  the operation of many of its applications depends
  on other tools with which it interconnects.
• For example, if something goes wrong with the
  MakerDAO protocol, lending platforms,
  decentralized exchanges, and liquidity pools
  could also be affected by the issue, since Maker
  underlies many of them.

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Conclusion

• Cryptocurrencies have brought about a change in
  the functioning of money, as we knew it.
• DeFi Development Company now proposes to take
  this one step further and bring the different
  elements of the conventional banking system into
  a fully digital and decentralized environment.
• All this eliminating the need for trusted third
  parties, eliminating the additional costs of the
  conventional banking system, reducing management
  times and reducing tedious bureaucracy.