Altcoins Talks - Cryptocurrency Forum
Cryptocurrency Ecosystem => DeFi tokens => Topic started by: Monster5 on September 19, 2022, 05:14:42 AM
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Though they potentially have more access to resources, even billionaire investors aren't immune to risk when it comes to decentralized finance, or DeFi. (https://www.cnbc.com/2021/06/18/whats-defi-crypto-based-decentralized-finance-explained.html)
That includes Mark Cuban, who revealed on Wednesday evening that he was trading a DeFi token from Iron Finance called titan that ended up crashing to zero in one day.
At first, some in the crypto world speculated that this was the result of a rug pull, which is a type of scam where developers abandon a project and leave with investors' funds. Iron Finance denied those claims. The project said in a blog post that the crash was due to a "bank run," or panic selling, and the token's algorithmic code.
Regardless, Cuban's experience is a good reminder of how volatile and risky investing in crypto, and DeFi especially, can be. His takeaway: "Do your own research," he told CNBC Make It.
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Exactly, many people are only following the hype created or only following FOMO without any further analysis on what projects to invest. We have saw many ways right here, for, not all people have good willingness to learn. Most of them may feel lazy to read and better prefer to only folow other decisions. ANd this is ecatly not recommened for newbues.
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Absolutely. But things are rapidly developing on that front too...
The underlying reason for DeFi's risks is pretty simple and profound - Decentralized Finance brings you financial freedom. And there's no riskier thing in the world than freedom. So much so, the bulk of humanity has grown used to trading their freedom (risk) for security.
Since DeFi is about financial freedom, newbies have to understand, that risk itself is a fundamental factor in DeFi. It's NECESSARY. That is a totally new concept for TradFi people, who view risk as an ultimate threat, but never as something constructive.
DeFi is still maturing (as crypto itself) and the technology that utilizes DeFi's inherent risk is just starting to appear.
Main risks in DeFi are:
- Investing in and using a hollow protocol - a rug pull or ponzi. Prevention: DYOR, but sometimes it can't be researched (by the majority), like the Terra incident.
- Investing or using a protocol with low security - hacks. Prevention: Get coverage on your assets, although there's a big inefficiency and insufficiency in current coverage protocols (a question for another thread).
- Bad financial decisions - the chosen protocol is sound, but the user is not managing their assets properly. Prevention: More education! Of course, the learning curve for the crypto beginner is very, very steep.
So, obviously there's an untapped niche for new and innovative protocols, that:
- Help you DYOR in sound DeFi protocols with their risk know-how;
- Bring innovations in the neglected sector of DeFi coverage and insurance;
- Help you climb the steep learning curve;
I think there already are protocols that do just that... but I'm sure the readers can research them on their own.
DeFi cannot continue forward without addressing said problems. Indeed - if DeFi addresses these problems on its own, it will evade all those regulations that are about to be imposed on the sector. Don't forget that US and EU legislation, as well as the Eastern governments, are looking for ways to get rid of DeFi in an attempt to "keep the fiat financial stability".
So protocols that address these problems may not only be instrumental in DeFi's further evolution, but may very well be the saving grace for DeFi against KYC and centralized control by governments.
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This is always the case in the crypto world, especially for newbies who just go along with it. They don't even know and don't understand what they want to invest in. This is very high risk, isn't it?
We are always vigilant by diligently reading and studying first and analyzing every project that we will invest in. Even though it was a hype project, like DeFi was back then, we also had to be careful.
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Many people start investing without doing much research before investing. In my opinion you should definitely do your research before investing. Nowadays there are very few people who are interested in teaching. Since you will be investing money in one place, you must have a detailed understanding of the coins you want to invest in. Then you can invest at the right time if you want to take the advice of those who are experienced, then I think you can earn profit. But always be careful not to step on the wrong path.
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In any project, DeFi, Decentralization or Centralization, everything must be researched from the start if this news is true that Mark Cuban entered the DeFi section and he was exposed to RuG as described above, in my opinion it is impossible why, because everyone knows who Mark Cuban is and there is no way he didn't do his research first before entering the world of crypto or Decentralization finance.
If Mark Cuban invests in a project, of course before the prayer does that, there is already a system of interviews or interviews or presentations from the decentralization or DeFi side.
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I remember well about Iron Finance, and what happened was the Death Spiral
You could see minute by minute the price falling and the money being drained away
I took part and managed to get out before the crash
And it's SUPER important to read up and understand what the service you're taking part in is, plus, in DeFis, there's always the risk of the contract
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For those who have been participating in DeFi without fully understanding the risk, it's very crucial to take a step back and educate yourself before continuing further. So, always take your time to understand about how DeFi works, including the different protocols, smart contracts, and potential risks involved. Always check for some resources, that can be available online, including articles and even review videos. But most important, always Do your own research.
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Risk is part and parcel of the crypto space. You cannot go in blindly, hoping you will only reap profits. It's just not how things work here. You have to do your own research, and even then ONLY invest what you can afford to lose. People forget the latter bit and end up panicking when they see the first dip post-investment. I mean sure there are ways to minime your risk (check r100k) but no one, NO ONE can guarantee a risk-free investment. If someone's promising that, it's a scam pure and simple.