the dark side of DeFi investments - here is this year's history

the dark side of DeFi investments - here is this year's history

By VNFC | crypto sessions | 30 Oct 2020


hello again

Like everybody knows, in 2020 we had only 3 major events in crypto with price implications:

- 1. the dump ( 13 march) and then 2. the rebirth of BTC (from april until now)

- 3. the DeFi and DEX projects explosion, with Liquidity Pools and all stuff

What comes with this?

First, the good side: easy money for everybody: by early entering in DeFi projects, you could get the biggest rewards. Like early mining. The same with Liquidity Pools: you need to have a part in the token you want to provide liquidity and the equivalent in ETH. In this way, a part of the fees taken by the exchange are coming to you.

The bad side: impermanent loss: this means - your tokens could decrease in price vs $ and/or ETH, but if you are a long term holder, it doesn't matter. The price will increase in time.

But this is only a discomfort that could happen in every market. What I want you to present is...

The dark side

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What is worst than Impermanent Loss? I think you know already: the lost of the funds. Unfortunately, not only the Centralized Exchanges could suffer attacks, but also Decentralized Projects. It is not happened once, or twice, but many times and it will still happen. The causes are multiple, for security breaches to protocol flaws.

Cryptodiffer made for us a summary of these black events in DeFi world in 2020:

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As you can see, the second most important event took place few days ago on an acclaimed DeFi protocol: Harvest Finance (FARM): 24 millions were drained by using a protocol weakness, so it was not a hacking, but a protocol deficiency. Curious thing: 2.5 millions were returned.

So, amongst Harvest Finance, you can see here: dForce, bZx (three times succesfull attacks), Balancer and imBTC.

You need to know that problems were and still are in MakerDAO protocol - 8.32 millions drained in march 2020. Yes, it wasn't done manually, but with the help of a sofware. Details here.

58159d8e936c9f73a1cf770784b0403fa5e49fd061ee83147eb2b839b9d267de.png

Also, a security flaw discovered in YAM (before the potential disaster) conducted to price collapse of this token, after few tries of repairing it.

 

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This event is coming after the announcement made by the Aave Protocol developer, Emilio Frangella - regarding the security level of it. Now comes the question: if this is not so different, problems could appear in Synthethix also? We don't know until now.

 

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The most recent news comes again from MakerDAO (MKR) on how flash loans can manipulate the order inside a protocol:

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What can we do to prevent this?

First of all, you need to know: the first come could take the biggest pie, but also all the risks.

So:

- don't get ALL IN!!

- if you are very enthusiast for a project - start only with 20% maximum from your total amount proposed to invest

- after you read more and see OFFICIAL results of security audits, invest more, but not all remained

- only after at least few months of project monitoring I can recommend to enter with the rest of the money


VNFC
VNFC

Pragmatic style. Love Science Fiction, Sports, Music and Dance, Travel and Movies. Hit me with AMA and I will try to make a good solution.


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