There is no trust in DeFi without proper risk management

💡 DMK Insight

DeFi’s composability is a double-edged sword, amplifying both innovation and risk. As protocols interconnect, a vulnerability in one can trigger a domino effect, leading to cascading exploits across the ecosystem. This is crucial for traders to understand, especially in a market where institutional adoption is on the rise. Institutions are pushing for standardized frameworks akin to traditional finance, which could stabilize the sector but also stifle the rapid innovation that DeFi thrives on. Traders should keep an eye on protocols that are heavily interconnected, as a single exploit could lead to significant price swings across multiple assets. Monitoring metrics like total value locked (TVL) in these protocols can provide insights into potential vulnerabilities. The real story here is how these risks might affect liquidity and trading strategies in the short term, especially as institutions enter the space looking for safer, more reliable investment avenues.