Sure, You Can DeFi. But You Can't Defy Risk

Decentralized finance, or "DeFi" as it's more commonly known, is gaining traction in the business world for its speed, efficiency, flexibility and potential outsize returns. There are fundamental risks all companies should understand before entering this new financial paradigm. In this article, we explore three of those risks.

DeFi is one of the most intriguing and hotly followed technologies in financial services today. It utilizes blockchain technology and digital assets to facilitate financial transactions such as borrowing and lending, trading, insurance, asset management and payment settlement, to name a few. The total value locked in DeFi protocols — one of the most followed metrics in the industry — as of the start of November 2022 was approximately US$56 billion, which, despite a rapid run-up and sell-off from early Q1 2021 to late Q1 2022, represented a 141% compound annual growth rate over the last two years.¹