DeFi Risk Exposure

Definition ∞ DeFi risk exposure refers to the potential for financial loss or adverse outcomes faced by participants in decentralized finance protocols. This encompasses various hazards, including smart contract vulnerabilities, liquidation risks, oracle manipulation, and economic exploits. Understanding these exposures is vital for users and developers to assess the safety and stability of their digital asset holdings and protocol operations. Mitigating these risks requires careful analysis and robust system design.
Context ∞ DeFi markets are known for their high volatility and rapid innovation, which often introduce new forms of risk. News frequently details protocol hacks, flash loan attacks, or significant market downturns that increase user exposure. Regulatory bodies are also increasingly scrutinizing DeFi risk exposure, aiming to establish frameworks that protect consumers without stifling innovation.