How it works
Instead of relying entirely on a traditional intermediary, users interact with protocols whose rules are partly encoded in software. Governance and front-end operators can still have significant influence.
What to check
Check contract controls, collateral rules, oracle dependencies, governance and audits before treating a protocol as autonomous.
- Check contract controls
- Understand collateral and liquidation rules
- Identify oracle and governance dependencies
Limits and risks
DeFi adds smart-contract, oracle, liquidation and governance risk on top of normal market risk. High yields often compensate for risks that are not obvious from the headline rate.
Primary sources
Bitcoin Developer Reference↗Ethereum developer documentation↗FATF: Virtual Assets↗General information only. Investment products can lose value, and terms, fees and regulation can change.