DeFi (Decentralised Finance), security refers to the measures and protocols used to protect users’ assets and ensure the integrity of smart contracts and transactions on blockchain networks. It’s a critical aspect of DeFi, as it aims to provide a secure and transparent financial ecosystem without relying on traditional intermediaries.
How it works:
Smart contract audits:
DeFi platforms employ security audits to verify the functionality and safety of their smart contracts, which are the self-executing code that governs transactions.
Security protocols:
Security protocols like encryption and blockchain technology are used to secure transactions and data.
User education and best practices:
Users are encouraged to follow secure practices, such as using strong passwords and enabling two-factor authentication, to protect their private keys and wallets.
Decentralisation:
DeFi’s decentralised nature aims to distribute power and reduce the risk of single points of failure, making it more resilient to attacks.
Insurance and risk management:
DeFi platforms are developing their own insurance mechanisms to protect users from unexpected losses, such as hacks or faulty smart contract code.
Community oversight:
Many DeFi projects rely on community members to monitor and report potential security vulnerabilities.
Code review:
Prioritising smart contract security and conducting thorough code reviews can mitigate risk.
When was DeFi introduced?
DeFi can be traced back to 2017 with the emergence of projects like Maker DAO. While Bitcoin’s launch in 2009 laid the groundwork for digital currencies and the blockchain, it was the arrival of Ethereum and its smart contracts in 2015 that truly enabled the development of DeFi applications. The ;summer of DeFi’ in 2020 saw a rapid increase in popularity and the emergence of prominent projects like Compound, Yearn Finance, SushiSwap, and Uniswap v2. The term “DeFi” was coined in 2018 by a group of Ethereum developers and entrepreneurs.
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