This article was first published on TrustToken - Medium
Join us to build the infrastructure of decentralized, on-chain assurance
The decentralized finance industry is in a period of rapid boom: in February of 2020, the total value of assets in DeFi protocols reached $1B, almost quadrupling in under a year.
The industry isn’t just growing in size, but also in the sophistication of projects: from trustless forex with Uniswap, to instant borrowing & lending through Compound or Aave, to the rapid growth of decentralized exchanges, it seems like new DeFi projects are launching at least monthly.
With such rapid growth also come unexpected challenges. For the DiFi industry, those challenges have come in the form of hacks, the surprise of flash loans, and software bugs.
While DeFi opportunities are proving to be attractive to both technical traders and laypersons, perhaps the greatest threat is user ignorance: the technical risks are not well understood and poorly protected against.
Turning Vulnerability into Opportunity
We believe the most important challenge in DeFi is bringing clarity to the risks and rewards of this nascent technology. Far from slowing growth, this problem creates three opportunities:
- Transparency: Clearly communicating the known risks of a new protocol builds a foundation of trust among early users and the teams building these systems, leading to better products.
- Adoption: Properly surfacing the risks of new financial opportunities enables adoption from users with lower risk appetites, including institutional investors.
- Assurance: When risk is better understood, a marketplace to protect against it is allowed to emerge, lowering the risk of an asset or opportunity by insuring it with reserves.
While insurance companies cover most known risks, DeFi players will stake tokens as reserve collateral to assure fellow investors against unpredicted loss in exchange for a cut of ...
To keep reading, please go to the original article at:
TrustToken - Medium