The popularity and hidden danger of DeFi

Those who pay attention to the cryptocurrency space are likely heard of decentralized finance and the immeasurable wealth that it has created for many people. According to OKLink data, in June 2020, the total value locked on DeFi is only about $1 billion, however, by September, this number had grown to $9.83 billion, recording an astonishing approx. 800% increase.

Correspondingly is the emergence of various innovative DeFi applications on the market. From stablecoins, mortgage lending, to DEX and liquidity mining, DeFi is rapidly catching up with traditional finance in terms of product diversity. The price of governance tokens for various projects has also hit new highs repeatedly, even exceeding the price of BTC.

Since Compound launched its governance token, the total value locked in the decentralized financial sector has skyrocketed as users began to move to farm income as quickly as possible. By distributing the rewards generated by tokens, the annual rate of return can usually exceed 1,000%. Compared with 10-year treasury yields being at 0.6% and 12-month yields at 0.09%, 1,000% is extremely attractive.

There is no doubt that the DeFi season has arrived. However, this trend has also largely concealed the hidden danger of DeFi.

For most people, even those who have long been following the Cryptocurrency space, the learning cost of DeFi is very high. Regardless of the complex business model, the complicated operation of fund transfer alone is enough to make many people lost.

Besides, DeFi protocols are usually developed by small companies, which means the risk of smart contract bugs and vulnerabilities are relatively high. Even some well-known and audited protocols have been reported to be hacked. In addition to hackers, users also need to beware of scammers, who can take advantage of every opportunity in crypto.

Fortunately, these problems are not unsolvable. Some leading CEXs, like OKEx, are already trying to solve these problems. To conduct due diligence on the projects by centralized teams and to integrate various DeFi protocols in its platform through technical advantages, CEX can greatly reduce the risk and difficulty for users to participate in DeFi.

All in all, when DeFi and CeFi give full play to their advantages and promote each other, global users will ultimately benefit.