What are the risks of depositing Defi vs. Blockfi?

DeFi depositing/lending is an intensive approach to earning passive income from idle assets. But it is also essential to consider the various DeFi depositing risks before investing your hard-earned money. There are three main threats of DeFi lending that play a significant role in shaping the DeFi space. The three DeFi depositing risks are impermanent loss, DeFi rug pull schemes, and flash loan attacks. Notably, the earlier identification of these risks has made developers to come up with ways of mitigating them, hence contributing to the success of DeFi.

Decentralized finance protocols carry two main software risks. First, coding errors, or bugs, may cause the software to malfunction. This could result in a security vulnerability that allows hackers to break into the system and rob funds from the protocol.

DeFi protocols with higher deposits and long track records typically carry less software risk than new or small protocols; this is because it takes time to work out all the kinks.

Money deposited via BlockFi is not considered as safe as depositing it in a bank. Gemini is BlockFis's custodian, and the SIPC or FDIC does not insure it. While they are not insured, they do take certain measures to protect funds. For example, most funds are kept in cold storage when it comes to BlockFi.

BlockFi can be described as a crypto bank. Their services include a crypto exchange platform, lending, borrowing, and other compounding interest options. DeFi protocols also offer similar services but with even more attractive yield percentages.

However, considering all the recent hacks and rug pulls within the DeFi space, DeFi appears to carry more risks than a crypto bank service like DeFi. There are inherent risks within the DeFi space, like software bugs and smart contract failures, but there is also the danger of investing money in a rug pull project or a scam.

BlockFi does come with its own problems too. It is a centralized crypto service without FDIC insurance for covering deposits. However, they do implement risk management policies and are regulated by the New York Department of Financial Services.

The crypto space is generally a risky environment. Before committing to any project, one must weigh the risk and reward and decide if it is worth a shot.