As per a November <a href="https://mcusercontent.com/3bcee1ef2023cd3e45524e325/files/8671fb2b-9c37-451d-87c1-12d97f88b396/BNC_Research_Identifying_Key_Non_Financial_Risks_in_DeFi_on_Ethereum_Blockchain.pdf?utm_source=Brave+New+Coin+Newsletters&amp;utm_campaign=4ed3d7a019-NEW_RESEARCH_2019_08_16_04_36_COPY_02&amp;utm_medium=email&amp;utm_term=0_d7fa8797a2-4ed3d7a019-245407865" target="_blank" rel="nofollow noopener">report</a> by BraveNewCoin, key non-financial risks in decentralized finance (DeFi) on the <a href="https://www.cryptoknowmics.com/news/how-defi-is-filling-the-shortcomings-of-centralized-finance/">Ethereum blockchain</a> have been identified. Even though everyone is well aware of the financial glitches in the DeFi ecosystem, the report has mostly identified the core technical mishaps. It has particularly looked into the technical concerns associated with Ethereum-based smart contract finance protocols.
<h2><strong>Report Identifies Key Non-Financial Risks In DeFi</strong></h2>
The report has been written by BNC’s crypto-asset researcher Xavier Meegan by starting with the scalability risks in DeFi.

For Instance, in September, the DeFi network’s congestion resulted in sky-high gas fees, resulting in failed transactions. This as a whole resulted in the DeFi ecosystem not function properly. Even during the yield farming craze, the average Ethereum transaction fees went up to a whopping $15 at the time.

The report further went into the vulnerabilities associated with smart contracts. Some of them include the risks of reentrancy risk when a contract sends ETH prior to updating its internal state. It highlighted the example of the $25 million <a href="https://www.cryptoknowmics.com/news/dforce-attackers-returns-25m-stolen-funds-to-chinese-defi-project/">dForce attack</a> in April due to exploitation in reentrancy.

Meanwhile, oracles can also pose a serious threat to smart contracts due to receiving inaccurate or trickier output during off-chain values or asset prices This might be due to the manipulation of information from providers or malicious agents playing the part.
<h2><strong>Risk of Being Found More Risks</strong></h2>
Protocol design also can prove to be riskier if it could be manipulated. For Instance, composability needs to rely on another protocol to function. It further delved that “Money Lego” within the DeFi ecosystem makes it even riskier.

Meanwhile, there are risks associated with centralization in DeFi if they are controlled by a central intermediary. For example, Uniswap’s first governance vote was a good example of this where minor players tried to take hold of the outcome.

The report further added that there are several other risks associated with DeFi including economic incentive risk, financial illiteracy risk, and regulatory risk. The report ended with the conclusion that there was a risk of more risks being found in the making.

Key Non-Financial Risks In DeFi Identified In Latest Report

As per a November report by BraveNewCoin, key non-financial risks in decentralized finance (DeFi) on the Ethereum blockchain have been identified.

Jafrin is a cryptocurrency journalist/researcher fascinated by the world of decentralization. She is hopeful towards blockchain’s innovation and its potential to reshape the world for good. Currently, she is bringing out the best of cryptosphere via covering the latest ins and outs of the blockchain space.

Key Non-Financial Risks In DeFi Identified In Latest Report

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