DeFi Risks: What Can Go Wrong and How to Avoid Losing Money

When you dive into DeFi, decentralized finance systems that let you lend, borrow, and trade without banks. Also known as open finance, it’s built on blockchains like Ethereum and lets anyone with an internet connection access financial tools. But unlike banks, there’s no FDIC insurance, no customer service line, and no one to blame when things go wrong. That’s why understanding DeFi risks, the hidden dangers in decentralized protocols that can erase your funds overnight isn’t optional—it’s survival.

One of the biggest threats is smart contract vulnerabilities, coding errors in the automated agreements that run DeFi apps. These aren’t theoretical. In 2022, a single bug in a popular lending protocol drained $100 million because the code didn’t check if a user had enough collateral before approving a loan. No human reviewed it. No one stopped it. The code just ran—and took everything. Then there’s liquidity risk, when a token’s trading pool dries up and you can’t sell without crashing the price. You might see a 100% APY on a new yield farm, but if no one else is trading the token, you’re stuck. And let’s not forget crypto rug pulls, when developers abandon a project and vanish with all the funds. We’ve seen this with tokens like Burncoin and BabyPepeFi—no team, no roadmap, just a hype tweet and a quick exit.

DeFi isn’t broken—it’s just unregulated. That means you’re the last line of defense. Always check if a protocol has been audited by a known firm like CertiK or Trail of Bits. Look for real trading volume, not just fake numbers. Avoid projects with anonymous teams or zero social media activity. And never invest more than you’re willing to lose. The posts below show you exactly how this plays out in real cases: from exchanges that vanished overnight like VAEX and UPEX, to tokens like Tiamonds and IQ Protocol that promise real-world value but come with hidden traps. You’ll see how even "regulated" platforms like BEX Mauritius can be empty shells. These aren’t warnings—they’re case studies. Learn from them before you click "approve" on your next transaction.