Decentralized finance (DeFi) poses risks that could contribute to a systemic financial crisis, but its current scale limits this potential. DeFi’s exposure stems from high leverage, smart contract vulnerabilities, and interconnectedness with traditional finance. Flash loan attacks and protocol hacks, like the 2022 Ronin exploit, show how rapid losses can destabilize markets. However, DeFi’s total value locked (TVL) is roughly $100 billion (as of 2025), a fraction of global financial assets. Systemic risk would require broader adoption, increased leverage, or integration with major institutions. Regulatory gaps and lack of circuit breakers exacerbate vulnerabilities, but DeFi’s decentralized nature reduces single-point failures compared to traditional banking. While not yet systemic, unchecked growth or a major exploit could amplify risks, especially if correlated with broader market stress. Mitigation lies in robust audits, stress testing, and regulatory frameworks balancing innovation and stability.