Ethereum’s Vitalik Buterin Says DeFi Users are Underestimating Risks


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Ethereum co-founder Vitalik Buterin believes DeFi investors are underestimating smart contract risks on platforms locking billions of dollars these days, he said on a podcast this week.

“DeFi is Fine, But Don’t Put Your Life Savings”

In an interview marking Ethereum’s fifth birthday (it launched July 2015), Buterin said most DeFi players were not fully conversant with the risks that smart contracts present to investors, even more as the total value locked (TVL) jump by hundreds of millions of dollars each day.

Speaking on Laura Shin’s Unchained Podcast, Buterin warned users not to “risk their life savings in DeFi.” His words come as the broader crypto-community on Twitter is starting to allocate high capital to obscure, newly-launched projects – some even promising 10,000% yields.

“I think one big one is just that a lot of people are underestimating smart contract risk,” said Buterin when asked by Shin about what was the biggest concern, according to him, in the current market.

Buterin said that the interest rates are exponentially higher than traditional bank accounts meaning DeFi products are far riskier and have a much higher chance of “breaking.” He added he wasn’t confident about audited platforms and protocols either – as none of the currency projects fully guarantee security.

However, he was not all critical,

“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.”

This year alone, a number of DeFi companies faced troubles as hackers exploited smart contracts and took part in other illicit methods. One example is of the bZx flash loan exploit this year that resulted in the loss of almost $1 million worth of crypto.

No Yield Farming for Buterin

Buterin’s not a fan of yield farming – the so-called term for DeFi users to deploy a variety of measures to accumulate tokens and earn (insanely high) amounts of interest on them.

The shy 26-year-old Ethereum co-founder said yield farming remains an unsustainable venture, especially as high-interest rewards attract users lured towards promises of high returns.

But they aren’t going to do that forever, Buterirn added:

“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.”

Vitalik Buterin has not always been critical of decentralized finance. However, his comments come as high-flying – yet unproven – DeFi projects now account for over 1.5% of the entire crypto market.

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