While DeFi has been the most popular buzzword of the year, it is a space that is fraught with risks. In fact, a recent report[1] by BraveNewCoin outlined a series of 18 serious non-financial risks for DeFi, a report addressing the inherent risks that a user may be exposed to when diving into this ecosystem.
Out of the many risks the report went into in detail, one of the listed risks associated with decentralized finance, somewhat ironically, was “Centrality Risk.” The said report defined this as “the risk when a DeFi protocol relies on a centralized intermediary which could result in a central point of failure.”
Listed under centrality risks were three types. One of them, Upgradeable Smart Contract Vulnerability Risk, is the risk that an administrator can upgrade a smart contract and change the behavior that a user expects. Also listed was Centralized Stablecoins Centrality Risk which is the risk that major stablecoins in DeFi would not function as a user intends them to due to central points of failure of the stablecoin.
Pointing to USDT and USDC in particular, since they are minted by centralized third parties, the report suggested that any off-chain reserves that these coins are backed by will be susceptible to devaluation from scenarios such as a bank run.
Finally, it also suggested that since an estimated 63% of the Ethereum community uses Infura as their preferred Node operator, there are concerns that this would represent a single point of failure for the entire network. This “single point of failure” came to the fore on 11 November when multiple exchanges suspended[2] ETH withdrawals due to an Infura outage.
While the report cited several other categories of risks, most of them bear the common theme of a risk relating to
