Well.. here is the ‘fun’ part.
- Smart Contract risk – bugs, hacks, etc.
- ‘Bank run’ – all investors will ask for their money back almost at the same time, the last ones will be left without liquidity.
- Stablecoin losing it’s peg – we’re talking almost exclusively on USD-pegged stablecoins. Some of them might get value far less then $1 for a while, usually during a major crypto crash.
- Scams, rug pull – unreliable team behind the protocol.
- Wallet hack.
- IRS 🙂
How can we protect against those risks?
- Prefer audited popular (TVL) and long-lasted projects to invest in.
- Same as the above, plus stay tuned with your investment, we’re not in a traditional bank insured by the state banking system (in some countries).
- Look for age and popularity (market cap) of stablecoins. In addition, prefer a decentralized one, and check if it’s indeed backed by USD. BUSD is mostly backed by cash-equivalent USD assets. Against USDC the US SEC have an open investigation since July 2021, and USDT for years doesn’t provide enough evidence for its reserves in US banking system. DAI and other algorithmic stable coins still rely on centralized ones partly (USDC), UST is quite new but looks promising, and other stablecoins are not that popular yet.
- Same as #1 and #2 above.
- Use hardware wallet, split your portfolio into multiple accounts, diversify networks and protocols, keep seed phrase / passwords in a safe place, don’t use Windows (Linux preferable, if not – then MAC), use PC only for crypto transactions – if not then a browser dedicated for it only, use secured updated PC, lock the wallet if you don’t interact with it, removed non-familiar projects which have access to your wallet, keep low profile – don’t show off (like I do 😉 ).
- No one can save you from this risk. 😉 Well.. maybe programs like this – https://app.koinly.io/
Take a look at the Safety clause of this page for tools to help you DYOR.