DeFi Risk

Definition ∞ DeFi risk refers to the potential for financial loss within decentralized finance protocols and applications. These risks can stem from smart contract vulnerabilities, impermanent loss in liquidity provision, market volatility, or regulatory uncertainty. Understanding these risks is paramount for participants in the DeFi ecosystem.
Context ∞ The current landscape of DeFi risk is characterized by ongoing scrutiny of smart contract security audits, the potential for systemic contagion across interconnected protocols, and the increasing regulatory attention from global authorities. A key discussion involves the effectiveness of existing risk management tools and insurance mechanisms. Future developments will likely involve more sophisticated on-chain risk assessment and robust legal frameworks.