DeFi stands for decentralized finance and is one of the rising stars in the cryptocurrency world. DeFi eliminates the traditional ways of making loans or applying for one and insurance. You don’t have to pay additional fees that the banks usually charge and your money will be kept in a secure digital wallet. DeFi uses blockchain technology for its platform. Even in this country, you would be impressed with defi development malaysia. The most common question that people would ask is about the safety of DeFi and is it worth investing in. To answer the questions, let’s go through this post.
Is It Really Safe?
Well, anything can happen. Just like other platforms, DeFi too has its own risks. Based on the statistics, over US$1 billion was lost due to DeFi scams. This might be one of the alarming reasons why many people are still doubting investing in DeFi. There are quite a number of risks that you might face such as:
We are aware that most crypto platforms are not being managed dully by humans. The same goes for DeFi too with very tiny management by humans, the software could be breached by hackers. The common software error that usually occurs is “bugs” which can cause the software to break down. Other than that, coding errors and system security vulnerabilities would make the chance for hackers to easily hack the system and steal funds and money.
As mentioned previously, there is no insurance or regulation provided when you have decided to invest in DeFi. Unlike the traditional bank or other organisation, your money isn’t protected by any of them. We know that by using DeFi, we do not need anyone’s permission to access our account. This might be one of the reasons why many experts warn people to think thoroughly before making a decision and to only invest if they are willing to take the risk.
If you make any loan agreement whether in or out of DeFi and involve counterparty risk, this could harm your saving and account. Usually, large DeFi lending protocols would obligate borrowers to over-collateralise their loans. Over-collateralizing or OC means the collateral’s provision should be worth more than enough in case anything happens so that it would be enough to cover the losses received.
So, Is It Worth It Taking The Risks?
After knowing the risks, do you think it is still worth it? It all depends on you, whether you are willing to and capable to bear the consequences in the future. Since there is no human involvement in DeFi services, the chance of error can be minimised. Although there are some risks that might make you think for a while, the profits and benefits you gain from it could change your mind again. But, as mentioned before, in case anything happens such as you lose your money, you would not be protected or covered for that. Now back to the question, is it worth it? You may ask that yourself. If you have the answer, you may proceed with it or the other way round.