Yield farming has ballooned into a formidable sector all on its own under DeFi and for good reason. In a high volatility market such as crypto, capturing money-making opportunities and finding areas of high liquidity are paramount, so it is no wonder that yield farming, with almost guaranteed rewards and its high liquidity providers have attracted swarms of market participants entering the DeFi space.
The explosive growth of DeFi mirrors that of the 2017 ICO boom; however, in DeFi, projects are swift to emerge and no code audits have to be done for project owners before they begin marketing their product to others. This has led to multiple hacking attacks on DeFi protocols this year, which could have been avoided if someone had given their second opinion on the codes involved. In ICO project launches, before a token sale is to be had, plenty of requirements are put in place, such as code audits, security checks, legal opinions, identity verification for project team members and more. Investors take these verification steps seriously, and in a high liquidity and rewards environment such as DeFi, one would think the underlying smart contract and technical side of the protocols matter.
That is not the case, says CoinGecko.
According to a recent Yield Farming survey done by the crypto assets analytics platform, it is found that 40% of farmers who responded to the survey do not know how to read smart contracts and are unaware of the risks any given protocol might present.
“What is shocking to us (or maybe not) is that a large chunk of the farmers do not know how to read smart contracts (40%) and do not even know what impermanent loss is (33%), which implies that they don’t know their real ROI and are extreme risk-takers for the sake of the high returns. Perhaps that is why 49% of the farmers are generally wary of unaudited smart contracts and rely on smart contract auditors to check the safety of the contract,” the report states.
Recent security breaches on DeFi protocols such as Yam Finance and Soft Yearn.Finance are evidence enough of the necessity of due diligence by farmers in a high rewards and high stakes arena such as that of DeFi’s. Even after an open audit is completed, security firms such as PeckShield have also repeatedly cautioned against stepping into DeFi without prior research as accidents still occur after an audit.
You may also want to read: TVL on Uniswap Doubles to Almost $2 Billion in 3 Days