While there are many vectors of risk in DeFi, most of them fall into some of the following five groups, explains IntoTheBlock CEO jrdothoughts:
3. Governance Risks
Even though DeFi governance models are architecturally decentralized, many of them are controlled by a small number of parties that can influence the outcome of any proposal. This aspect is not as concerning as it seems as many of the large parties able to influence the outcome of DeFi governance votes are in that position only because of their active participation and alignment in the DeFi ecosystem – a clear sign of interest alignment.
networks in which a number of validators collude to influence the rewards distribution in the network and can effectively stop the functioning of DeFi protocols.We tend to obsess about the protocol and infrastructure aspects and often ignore the native market risk exposure of investments in the space. For instance, investments in non-stablecoin AMM pools are vulnerable to loss if the price of the assets diverges drastically from the time when the liquidity was supplied to the pool.
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