The coming of Decentralized Finance ( DeFi) to the cryptocurrency world was welcomed with open arms because of the gap ( absence of third party) the system was able to close. Defi recorded huge success in the year 2021 as there was a significant increase from $382 million in April 2020 to nearly $68 billion in April 2021. On the sad side , a total of $474 Million has been stolen from the Defi market within the first 7 months of 2021. The month of August 2021 witnessed the highest defi attack in a month; More than 20 defi attacks with the BILAXY exchange being the latest victim.
The fact is that Developers may be able to create working smart contract but cannot be confident that it is free from errors. This is while most Defi projects employs the service of White hat hackers ( a white hat hacker is a hacker who tests for vulnerability in a system and closes any loopholes he finds during the test) to access their smart contract on daily basis.
The question is , is there greater risk with DeFi projects?
The fact that DeFi is still a baby that is been nurtured is a threat on it's own. The system can only be very secured after years of usage. Secondly, since the system is built from codes, a slight error in the codes can put the entire system at risk. Scalability , interoperability and privacy are the three aspects that Defi projects are trying to solve and most times they end up creating loopholes while trying to build these " novel strategies".
On the project team side,many fraudsters have capitalized on the trust DeFi projects have gained from Investors to steal from users. They most times built their projects and after people have committed their money to the project, they go ahead to withdraw the liquidty thus making the project worthless.
Amidst all these risks associated with DeFi, it is still the best system for me. It's Decentralized nature, and the opportunity of growing wealth that it offers is something that makes it stand out. With DeFi project, you have more control over your fund and there is no THIRD party to disturb your transaction.
CONCLUSION
The fact is that hacking attempts will not slow down on a novel financial system like Defi ,and as such we shouldn't be discouraged by this. Defi projects on their part should be able to have regular audit on their smart contract. They should strengthen the bonds between them in such a way that if a smart contract is compromised, there will be a set side security measures that will prevent the exploiter from moving away the funds.
We on our own part have to make proper research before interacting with smart contracts. The money we may want to stake on them for passive income shouldn't be allowed to stay for a long period of time on the smart contract.
We should also bear in mind that by interacting with smart contracts ( either buying or selling a token or even when staking ) we give it access to our wallet and as such , some smart contracts can spend our token without our permission. Tools like beefy finance can help us in detecting smart contracts that can spend our tokens. We should also remove smart contracts after Interacting with them. This way we keep our wallet safe. It is also necessary that we have separate accounts for Airdrops. This is because some Airdrops are associated with dubious smart contracts that can steal someone's fund.
Your main wallet should be a separate wallet where you only store funds ( ofcourse I talk about Decentralized wallets. Centralized wallet should only be used for trading). Your passive earning from smart contracts should be done on a separate wallet.
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