Decentralized Finance (DeFi) platforms use smart contracts on public blockchains to replicate traditional financial services like lending and derivatives trading, introducing unique structural risks.
Core DeFi Vulnerabilities
- Smart Contract Exploits: Code vulnerabilities or logic bugs that allow malicious actors to drain capital pools instantly, bypassing traditional security protections.
- Oracle Manipulation Risk: Flaws that occur when automated data feeds (oracles) are manipulated by malicious actors to state incorrect asset prices, triggering forced liquidations across automated lending protocols.
- Unregulated Leverage Spikes: The lack of identity verification rules allows participants to build high levels of hidden leverage by cycling capital across multiple lending protocols, creating risks of cascading margin liquidations during market downturns.
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