Vitalik Calls for Caution Over DeFi Investments

Vitalik Buterin who is one of those that made Ethereum become a reality is concerned that investors in DeFi are ignorant of the risks associated with smart contracts.

Vitalik Buterin, co-founder of Ethereum, is drawing investors’ attention to the reality of ‘smart contract risk.’ He explained this during an interview to mark Ethereum’s five years of existence.

Buterin also warned that people should not invest all they have in DeFi. He expressed this concern in an unchained podcast with Laura Shin.

Something bad with smart contracts

Buterin was asked why he doesn’t really recommend DeFi and this is what he said:

“I think one big one is just that a lot of people are underestimating smart contract risk.”

Buterin also mentioned that DeFi investments are associated with much higher risks than traditional investments:

“DeFi is still fine, but don’t act like it’s a place where you should advocate for a lot of regular people to put their life savings into.”

Some very serious losses have happened in smart contracts this year. One of them happened to bZx flash loan in February and they lost nearly $1 million in cryptocurrency. Bancor smart contract was also affected with a bug that caused the network to stop functioning.

Yield farming may not last long

Buterin also said that returns generated from DeFi investments are too high and may not continue in the future. He said that those offering high returns may discontinue their present methods because they are not following a natural procedure:

“It’s a short term thing. And once the enticements disappear, you could easily see the yield rates would drop back down very close to zero percent.”

Something good to say about DeFi

Buterin started criticizing DeFi just recently. Sometime in the beginning of the year, he made statements that suggested he was for some DeFi projects because they were resistant to some notorious hack attempts. In a meeting at the Ethereal Virtual Summit two months ago, he said:

“Plenty of responsible DeFi projects have survived a long time without getting attacked. It’s definitely not an inherent property in DeFi itself, and there’s a way to do it responsibly.”

He recommended DeFi over centralized finance and exchanges because they were much easier to attack.

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