Pike
@pikefinance
DeFi lending is revolutionizing finance, but it’s not without risks. Before you dive in, here are the key points you need to know. Stay informed, stay safe. (1/13)🧵
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Pike
@pikefinance
2/ Smart Contract Risk: Lending protocols run on code. If there’s a bug, hackers can exploit it and drain funds. Even audited protocols aren’t 100% safe. Example: A hacker steals your $1,000 deposit via a code flaw. Liquidation Risk: Borrowers provide collateral (e.g., $ETH). If its value drops too much, it’s sold to cover the loan. Example: You borrow $500 with $1,000 ETH; ETH crashes, and your collateral is liquidated.
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Pike
@pikefinance
3/ Interest Rate Volatility: Rates in DeFi shift with demand. Returns or costs can change fast. Example: Your 8% return today drops to 4% tomorrow if borrowing demand falls. Liquidity Risk: If a protocol runs low on funds, withdrawals can be delayed. Example: You can’t withdraw because most funds are borrowed or already taken out.
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Pike
@pikefinance
4/ Oracle Risk: Protocols use oracles for price data. If they fail, asset values can be off, causing losses. Example: A glitch misprices stETH, triggering unfair liquidations. Systemic Risk: DeFi protocols are linked. One failure can ripple across others. Example: A hacked LST token (e.g., stETH) disrupts loans across protocols.
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Pike
@pikefinance
5/ Regulatory Risk: Governments may restrict DeFi access with new rules. Example: Your country bans a platform, locking you out of your funds. Governance Risks: Community votes can alter protocol rules, sometimes against you. Example: A vote raises borrowing limits, increasing lender risk.
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Pike
@pikefinance
6/ Bridge Risks: Cross-chain lending uses bridges, which can be hacked or congested. Example: A hacker exploits a bridge, stealing locked assets.
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