While offering revolutionary financial services, the decentralized finance (DeFi) sector has been plagued by a series of risks and exploits. According to IntoTheBlock, the DeFi ecosystem lost a staggering $58.78 billion from 2020 to 2023 due to exploits.
This alarming figure underscores the critical need for effective risk management strategies within the DeFi ecosystem.
Risk Management Challenges in DeFi Protocols
DeFi risks predominantly fall into two categories: technical and economic.
- Technical risks involve potential vulnerabilities in protocol code that malicious actors can exploit. These were evidenced by incidents like The DAO hack and the Ronin Network bridge exploit.
- Economic risks are linked to imbalances in protocol supply and demand dynamics, leading to depositor losses. For instance, the Terra and UST collapse and oracle manipulation attacks.
Given this backdrop, IntoTheBlock introduced the DeFi Risk Radar, which presents an intriguing development risk management. This tool aims to provide transparency by aggregating DeFi data and making it more accessible and understandable. It offers a real-time overview of assets and market conditions.
The platform includes risk dashboards with quantitative risk signals for individual DeFi protocols and markets and programmable APIs for monitoring DeFi protocols. For instance, in Automated Market Maker (AMM) protocols like Curve, users can find valuable signals such as slippage or addresses actively arbitraging positions. Similarly, in lending protocols, different signals identify conditions like liquidations or accumulating bad debt in a lending market.
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Author: Harsh Notariya
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