Vitalik Buterin sounds warning over risks of DeFi

Ethereum cofounder Vitalik Buterin has sounded a warning against the pitfalls of decentralized finance (DeFi) and self-custody, namely of bugs in smart contract code, in a post from his verified Twitter account.

See related article: Who is exposed to FTX? A running compilation on a rapidly moving target

Fast facts

• “The ‘centralized anything is evil by default, use DeFi and self-custody’ ethos did very well this week,” wrote Buterin, referring to the loss of trust in centralized exchanges that led to record exchange outflows, following FTX’s collapse.

• “But remember that it too has risks: bugs in smart contract code,” continued Buterin, adding that developers should “keep code simple,” and perform “audits” and “formal verification,” to prevent smart contract exploits.

• “The one I worry about most is if we have $10B in a ZK-rollup 2y from now and it gets hacked because of a bug in the circuit constraint code or the EVM wrapper around it,” wrote Buterin, attaching his blog post titled “Hardening rollups with multi-proofs.”

• Following the FTX saga, industry leaders like Binance’s Changpeng Zhao have started advocating self-custody solutions as crypto exchanges saw a record-high week of BTC outflows.
• FTX filed for Chapter 11 bankruptcy in the U.S. on Friday with Sam-Bankman Fried stepping down as the company’s CEO, sparking concern across investors worried about a potential crypto contagion.

• ETH shed 4.7% of its value in the last 24 hours, changing hands at US$1,205 at 11 p.m. in Hong Kong on Wednesday, according to CoinGecko data.

See related article: FTX is crypto’s Lehman Bros. moment. What happens now?

Source