DeFi is on a hot streak thanks to a shift in outlook by the U.S. SEC late 2024. The positive regulatory environment may have you considering crypto use cases for your business. We’re here to help you explore your options while staying secure.
The risks associated with DeFi platforms
Imagine DeFi platforms as vending machines. Built right, all you need is your own wallet to make a token purchase. It’s
- Trustless, meaning you don’t need an agent to manage the sale
- Operates along predefined rules, aka smart contracts
- Automated, so you only get what the machine is programmed to offer.
But what happens if a nefarious actor programs the vending machine to deliver two sodas per single transaction? Or adds one of those card readers that will steal your bank card number? Not to mention if the price of soda suddenly changes while you’re making the purchase.
With no central governing body, the money you fed into the vending machine is gone. This frightens a lot of business owners and would-be investors away from crypto engagement. Like any technology, it can be used securely, as long as you know how to use it. Here are some things to know before bringing your business onchain.
Smart contract security: Mitigating risks
Smart contracts are the code behind crypto transactions. Written right, they will power a token system (aka. Vending machine) for years to come. Written poorly, and you may lose your hat. How do you know the difference?
- Check the audits. An above-board token will have had and will continue to schedule smart contract audits. These audits make sure the code is up to stuff, just like vending machine approval and maintenance, protecting all parties from a hack. Make sure to read them, too. Understand what issues were found and whether they were addressed. Was the auditor well-reputed?
- Check reputations. Some of the biggest crypto crises were driven by cloak-and-dagger project leaders that took the money and ran. Smart founders build out loud and focus on community. They have nothing to hide.
- Use a Token Explorer. Platforms like Etherscan will verify the smart contracts behind a token, and even say if the project is open source. You can also see how many holders and transactions a token has – the lower, the more suspicious. Imagine being able to see how many people use a vending machine and how well-trusted it is.
DeFi protocols and market stability
DeFi is still finance and subject to market volatility. The media likes to cover the hikes and drops, not so much how businesses are securely using crypto every day. Here’s how you can, too.
- Use stablecoins. These tokens are tied to real assets like USD, gold, or materials, so their value holds. You wouldn’t purchase a candy bar from a vending machine using your stock holdings, either.
- Hold and diversify. If you have crypto holdings in your business and the market goes down, don’t bail out. Use a more stable currency during the downturn and resume using crypto when the market grows. Set a threshold for each kind of currency and rebalance as needed.
- Use automated tools. Several DeFi tools like Yearn and Beefy have stop-loss or take-profit settings that protect your assets against market fluctuations. Crypto investors will like this one, too.
Proactive measures for DeFi security
“As investors and businesses increasingly engage with decentralized finance, they are exposed to significant security risks: from smart contract vulnerabilities, fake token projects, regulatory uncertainty, and scammers information asymmetry. They need real-time, quick, and actionable insights to protect their assets.”
— Enrique Martinez, founder of DeRiskit
DeRiskit AI is an advanced crypto due diligence platform that leverages artificial intelligence and Web3 technologies to provide investors with transparent, comprehensive risk management on cryptocurrency projects, empowering them to make informed decisions.
I hope you’re still interested in integrating DeFi into your business after this. Enrique was, that’s why he decided to do something about the security first, and developed DeRiskit.
DeFi is a powerful tool that expands your reach and speeds your remittance. Here is the DeFi security you need to integrate into your business model.
Choosing secure DeFi platforms
- Use DeFi security analyzers: Specialized platforms like DeRiskit will conduct due diligence for you at scale so you can review hundreds of projects and choose the best one.
- Stick to blue chip currencies: These are the ones you hear about all the time because they’re stable, proven, and well-supported. This includes Bitcoin, Ethereum, and Solana.
- Look for those audits: I suggest adding a system in your business model to review the audits of the DeFi platforms you engage with. Remember, an audit done once is only one data point. Audits (and action) over time tell the true tale.
- Check total value locked (TVL): This metric indicates how much money is flowing in a currency at a given time. More money means more eyes on the project, ensuring bugs get found and fixed faster.
DeFi insurance in risk management
- Invest in insurance: DeFi insurance platforms like Nexus Mutual and InsurAce will cover you against smart contract failure, hacks, and more.
- Read the fine print: Don’t be the guy whose homeowner insurance includes flood coverage unless from a hurricane. Get clear what triggers a payout and the nuances therein.
- Cover what you have: If your business is going to hold or manage a certain amount of crypto over time, that is what should be covered. Work with your accountant (or CFO) to triple check your YOY balance so you don’t take out too little insurance (for your business or investment).
Enhancing your DeFi wallet security
Whether your business or you personally are investing in crypto, wallet security should be your top priority. Here are a few final tips for ways to secure that wallet against the worst.
- Use a Multisig wallet: This requires multiple team members to approve large transactions. The leading Multisig is Glosis Safe.
- Segment funds: Use multiple currencies to ensure resilience against market volatility and hacks (heaven forbid). This is what a savvy investor should already be doing. A mix of assets is always healthier.
- Use a cold wallet: Hackers are online. If your wallet isn’t, it’s nearly impossible for a hack to occur.
- Set up a Google Alert. We know you’re already using them for your name, your business name, and probably your favorite actor (or is that just me?). A Google Alert for the protocols you engage with will ensure you see when a security brief lands ASAP.
The future of DeFi safety
Every technology has its dark side. Even vending machines could steal your card number if hacked. Participating safely in DeFi has standards just like any financial activity. Whether you’re integrating crypto into your business or you want to trade on the side, as long as you know safety protocols, the risk is minimal. Learn more about crypto security in our reports.
