A November report by data and research company BraveNewCoin has highlighted a number of serious 'not-financial' risks in decentralized finance.

The financial risks involved with DeFi have been well documented, simply the new study delves into more technical concerns associated with Ethereum-based smart contract finance protocols.

The study, penned by BNC analyst Xavier Meegan, begins with scalability risks which anyone dealing with DeFi in September this yr volition be familiar with. Network congestion resulting in high gas fees and failed transactions can cause DeFi protocols to malfunction or non work as intended.

During the top of the yield farming frenzy, average Ethereum transaction fees skyrocketed to record figures effectually $15. The report cited the Black Thursday effect equally an example;

"We saw this happen on Black Thursday in March 2020, when actors in MakerDAO (liquidators) could not access auctions to bid on collateral,resulting in collateral being sold for free."

Numerous smart contract vulnerabilities were cited, including reentrancy take chances which occurs when a contract sends ETH earlier updating its internal state. The $25 one thousand thousand dForce assault in April is an example of a reentrancy exploit.

Flash loans (where assets can be borrowed and repaid within the same transactions) can exploit this, with notable examples this year including bZx, Opyn, Harvest Finance, and more recently Pickle Finance.

Oracles as well pose a hazard as a smart contract may receive mendacious or innacurate input regarding off-chain values or asset prices due to the manipulation of data from the provider or a malicious player.

Protocol design tin can pose a risk if it can exist manipulated to benefit cyber-criminals. Composability is a good example of this whereby a DeFi protocol needs to rely on another protocol to role. The report noted that the "money Lego" concept of interconnectivity within the ecosystem opens it up to farther take chances;

"The current inter-connectedness of DeFi is extremely similar to how traditional finance was earlier the Global Financial Crisis (GFC) in 2007–08."

There is besides centralization take chances associated with DeFi, if protocols are controlled by a fundamental intermediary or governance is controlled past a few whales. Uniswap'southward outset governance vote was a good case of how a small-scale number of players can attempt to control the consequence. Additionally, the majority of stablecoins used in DeFi are centralized and controlled by corporations.

Reliance on Infura every bit a node infrastructure operator is also risky as the industry found out during the minor outage in mid-November. Infura provides cloud-based Ethereum clients and so that users practise not have to run their ain nodes.

"An estimated 63% of the Ethereum community use Infura as their preferred method of interacting with the blockchain. What are the consequences if Infura does not office every bit expected one solar day?"

The report added that there were several other risks such as economic incentive run a risk,financial illiteracy risk, and regulatory hazard. It concluded that there was likewise the risk of more than risks beingness institute making the entire ecosystem audio similar one big financial nightmare!