How We Might Overcome DeFi’s Pitfalls
Satoshi Nakamoto imagined a trustless, transparent financial system without the need for intermediaries like banks mediating everyday transactions. Nakamoto’s philosophy reached its zenith with the emergence of smart contracts and decentralized finance (DeFi). The DeFi sector grew significantly, and its total volume locked (TVL) surpassed $250 billion in 2021. Despite turbulent market conditions, DeFi’s TVL hovered around $230 in April 2022, with Ethereum dominating 54% of the market. Yet, DeFi has its pitfalls. Protocols are often prone to hacks and security breaches. For example, in 2021, users lost around $1.3 billion, a sharp jump of over 160% from 2020. The trend continues into 2022, with 97% of all crypto hacks happening in DeFi. More importantly, the problems begin with hacks and scams but don’t end there. Innovating permanent solutions is necessary. Promising developments are already underway. Nevertheless, we must remember that technology takes time to realize its full potential. DeFi will overcome its shortcomings permanently—it’s not a question of if but when.
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