If you are new to the channel and enjoy everything financed, then dont forget to subscribe for more content. Just like this, and with that lets get into todays episode, though they potentially have more access to resources. Even billionaire investors arent immune to risk when it comes to decentralized finance or defy that includes mark cuban. He was trading a defy token from iron finance called titan that ended up crashing to zero. In one day i got hit like everyone else said, cuban owner of the dallas mavericks and an investor on abcs shark tank at first. Some in the crypto world speculated that this was a result of a rug pull which is a type of scam where developers abandon a project and leave with investors, funds iron finance denied those claims. The project said in a blog post that the crash was due to a bank run or panic selling and the tokens algorithmic code regardless experience is a good reminder of how volatile and risky investing in crypto and defy especially, can be his takeaway. Do your own research. He told cnbc make it. Fraud within the space has recently surged. Between january and april, 156 million dollars was stolen in d5 related hacks. According to ciphertrace d5, fraudsters stole an additional 83.4 million dollars and, although its rare for coins to completely tank like with titan its still possible and investors should be aware, i think its really important for people participating in the defy space to understand the risks and rewards Melton demears coin shares chief strategy officer, told cnbc make it.

People have been participating in d5 without understanding the risks, even though defy has been buzzy lately, and you may have fomo about investing its important to research and to understand the risks first, so heres what you should know according to experts, what is defy defy applications defy Applications aim to recreate traditional financial systems such as banks and exchanges with cryptocurrency most run on the ethereum blockchain. The difference is that defy apps operate without a central service. Exercising control over the entire system said john woo, president of ava labs, a team supporting development of defy applications on the avalanche blockchain through defy lending users can lend out cryptocurrency, like your traditional bank, does with fiat currency and earn interest as a lender. Borrowing and lending are among the most common use cases for d5 applications, but there are many more increasingly complex options too, such as becoming a liquidity provider to a decentralized exchange. Interest rates are typically more attractive than with traditional banks, and the barrier to entry to borrow is low compared with that of a traditional system. In most cases, the only requirement to take out a defy loan is the ability to provide collateral with other crypto assets. Users can sometimes offer their nfts or non fungible tokens as collateral, for example, depending on the d5 protocol used. However, these factors also contribute to why defy is much riskier than a traditional bank. How risky of an investment is it? It is important to understand that investing in d5 is highly risky.

I think every d5 protocol and every d5 project has a different level of risk and a different level of reward said to mirrors, but he said its important to understand the reason the reward is high is because the risk is higher. The reason we see high yield is there is risk there. There are three major types of risks to consider to mirror set number one technology risk, smart contracts or collections of code that carry out a set of instructions on the blockchain are essential for d5 applications to run. But if there is an issue with the developers code, then there could potentially be weaknesses within a d5 protocol. At the end of the day, the software is only as good as the coding that was done, and sometimes there are unknown errors in the code that govern these protocols. Tamira said number two asset risk. When borrowing on a d5 application, you typically offer other crypto assets owned as collateral. For example, d5 protocol maker requires borrowers to collateralize their loan. 150 percent of the loan value, for example, defy protocol maker, requires borrowers to collateralize their loan 150 of the loan value at minimum. Since cryptocurrencies are volatile, their value frequently fluctuates. If there is a downturn, the crypto assets used as collateral may sharply decline in value and some may see their positions liquidated thats. Why some use stable coins, which are supposed to be pegged to fiat and be less volatile number three product risk? Typically, less mature pools or newer protocols will have higher yields because theyre untested said demears theres a significant amount of risk related to how the yield youre earning is being generated, and its also important to note that, unlike with a traditional bank, there is no regulation or Insurance on your money, when you use defy, though, defy loans are collateralized with other crypto assets.

Borrowers using d5 protocols cannot be held accountable, otherwise if they are unable to effectively pay back a loan. These risk factors are in part why experts warn to invest only what you can afford to lose and recommend conducting thorough research before buying in what should beginners know if you decide to invest in any defy application. The first thing you should do is vet the applications. Youre exploring to make sure theyre, secure and well audited, woo said when youre choosing an underlying network, such as a blockchain protocol or exchange wu, recommends looking for one that isnt controlled by a small group of players can handle heavy user demand and has affordable transaction fees. A few big red flags include applications that dont share their code or ignore concerns in their forums and social feeds about security. Woo warned he went on some of the best projects are led by anonymous or pseudo anonymous founders who protect their privacy. So i dont write a project off for that, but i do expect transparency on the application and if something feels off it likely is woo says defy, is growing so fast and the yields are so high. That opportunities can feel too good to be true when in doubt trust your gut or look for more objective members of the community, with the technical expertise to thoroughly review the code and with that weve reached the end of todays episode. All about crypto banking, decentralized finance. Do you know what decentralized finance is get involved and let us know in the comments section down below if you enjoyed this one and found it helpful, then leave a like and subscribe for more content.

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