Are there any risks to the DeFi borrower?
Asked 4 years ago
I am trying to gather as much information as possible about DeFi lending before I make any major decisions about beginning. Are there any risks to the DeFi borrower in the world of lending? Thanks!
Sheldon Owen
Monday, June 27, 2022
As a DeFi borrower, you are exposed to risks such as:
Software risk
DeFi platforms use smart contracts/software codes running on the internet. Like other software, DeFi smart contracts are vulnerable to bugs and hacks that can lead to the loss of deposited funds.
Impermanent Loss
You risk an impermanent loss when you lock your tokens in a DeFi protocol as collateral. This is when the value of your locked tokens changes, creating an unrealized loss versus if you had them in your wallet for exchange. Your collateral can be liquidated if its value declines below the loan's value.
Regulatory risk
Currently, DeFi lending platforms run with little or no government oversight. However, this situation is bound to change, and you can't tell how those regulations will affect the asset you have locked and borrowed from DeFi protocols.
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