-Smart contract hacks are a big problem, we’ve had examples of DEFI projects being hacked for hundreds of millions of dollars.
-The scamming is out of control, not only within the crypto space, but outside of it as well. You get paid advertisements on youtube and other websites trying to scam people out of their cryptocurrencies.
-Scalability is the biggest problems to my eye, we have massive protocols like Solana crashing more than once , which can’t happen in order for the space to scale up.
Vampire attacks between protocols, leading to instability and increased risks
The uncertainty of what my government will do with the laws of Defi here in the US. The stability of the crypto market at this time and all the information for each protocol is a lot to take in for me with just starting out. I have thought of what will happen with all my assets if I have them in different Defi areas and different wallets if I die and no other family member can figure out how to get access.
I have so many of the same thoughts. I’ve tried to explain to my wife how to log in and look at certain crypto investments but she says wow that’s a lot to remember. I worry that if both of us die in a car wreck how would my kids get my assets. Hopefully after learning this entire course I could join a project working on this. I can only assume so many people over the world have died and now all their crypto is just out there with no one to claim it.
Last week collpased Terra and its stablecoin, UST. It wasn’t a scam but it looks like it had a fundamental flaw that even savy people missed to point out. At the end of the day, the damage it caused is far superior to the most elaborate scam. How can we determine if a DeFi project has any fundamentall flaw?
That was my concern too. I think it’ll be better to work a document (a spreadsheet or in word) updated all the time with the information were all the cryptos are.
Seems like most drawbacks have already been stated. My biggest drawback concern is that once a transaction is done in Defi, we practically unable to cancel or undo them. There is no central authority or institution to complain to or report to. It’s all on us. So I guess we should start small and learn gradually to get used to certain Defi protocols that we are interested in, and also to do our own due diligence beforehand.
This is new to me. Will read more on this, thank you.
A drawback that is of concern to me regarding the DeFi space, would be in the lending of my cryptocurrency. The crypto market right now is young and quite volatile. Loaning my currency out at one price, and then having the market value significantly drop can lead to a possible terrible return on investment for me. Issues such as these and not being able to rectify the smallest of errors still plague my mind.
Learning Curve High: definitely a lot of new technology jargon to learn and how to become your own bank with tech requires a learning curve which not all people would like to do
to have a growth in Defi the triple dilemma has to be solved gradually ; most important even the largest lagging Scalability L1 ETH doesn’t have the scalability to overtake VISA, mastercard or american Express Transactions per Second Volume.
Loopholes to regulate: gas price manipulation from ETH miners; so all in all regulation is needed here or find other ways through PoS for stakers.
Risk of finding a bug in a smart contract. Someone could drain a smart contract if they find a bug in it.
Yes from what I understood the problem came from a weakness in the pegging algorithm of UST. It recently started to be mainly backed by BTC. UST being an algorithmic stablecoin, we can see how the algo works. When the whale sold lots of UST in the pool (UST losing its value), the reserve had to sell BTC (that backed the UST) in order to maintain the peg.
Information about Defi online can be more accurately classified as ‘misinformation’. There are virtually no accurate, up to date, informed AND neutral, non biased sources of information easily accessible online. This course hopefully could be one source, unfortunately it is behind a paywall.
scammers esp for the newbie. Too much to learn
Drawback of Defi: low liquidity, the risk of even if a protocol seems secure from a tech/development point of view, which is already a crucial overlooked part, exit-liquidity events can happen quite easily, be it from a whale typical movement or intentional malicious manipulation of markets.
(seems like taking an easy answer considering the context, but I believe we should be paying more attention to that and how to mitigate those risks, specially when we have protocols competing for unsustainable rewards to attract liquidity that ends up fragmented)
Yes, is similar to my answer that was around the small liquisity and risks associated to this…
If the goal is passive income not lending one asset, but LPing is very risk and volatile move too. Some protocols have been trying no IL or ILP (impermanent loss protection) proposals, such as Bancor/Balancer, Thorchain and others, but they still need to be stress-tested.
I like the Thorchain approach that compensates IL with actual fees that is expected to be enough to cover for it, but in a bear market such as now, or if the value flowing throught Thorchain gets too big or complex, I wonder what are the possibilities.
In that matter, I’m trying very hard to understand the implications of Thorchain roadmap that includes fixed yeld and/or for one-sided for tokens such as BTC and ETH; and a descentralized stablecoin (based on the Terra implementation which …well,PTSD, but with a different approach in relation to the RUNE token)
Took the answering another question exercise as an opportunity to share my cusirosity about Thorchain, in case others here are interested in that debate.
The actual smart contracts need to be bug free so that hackers have no way of breaking into the functions that allow these protocols to operate. Next, protocols need to have a strong blueprint which allows them to maintain the liquidity or collateral necessary to avoid a rug pull/bank run scenario. The most robust platforms such as Maker or Aave have been stress tested before and survived. UST is an important example of what happens if funds are not properly backed. Any weakness will be exploited. Overall, it is crucial to address all potential points of failure before a platform holds user funds.
I think one of the drawbacks is that a lot of people find it hard to grasp the concept of DeFi and really think that it is either redundant or useless. It is quite hard to understand unless you put in the effort of understanding it.
in my opinion eth gas fees are the only drawback. fed regulation i feel are a drawback in crypto as a whole. the rest i feel are a learning curve. messing up a transaction comes with having complete control of your money. you drop a dollar on the ground and lose it you dont call the bank to replace it.
ETH gas fees are big drawback. Also regulations by the state can be an issue which make adoption difficult.
Scams and rug pulls are also an issue aswell as protocols shutting down without notice as we have seen recently.