Investing in cryptocurrencies and using decentralized finance can be a source of passive income. However, by connecting to our platform and using our services, you should be aware that you assume all risks and possible losses that may arise.
The CNMV and the Bank of Spain have issued statements on the risks of cryptocurrencies as an investment. Based on this, Alldefi has prepared a risk warning document.
We recognize that the document contains complex legal terminology and can be difficult to understand. Therefore, in this post, we will simplify the explanation, focusing on risks specific to the crypto ecosystem. However, there are other risks inherent to investing in general.
❌ Absence of Centralized Entity
The decentralization of cryptocurrencies, although seen as an advantage by many, comes with its own risks. Unlike in the traditional financial world, there is no entity that guarantees a specific amount of funds, which implies:
- Lack of Clear RegulationCurrently, in Europe, the trading and custody of cryptoassets are not regulated. This lack of clear regulation and oversight increases the risk for investors.
- Risk of Loss of Funds: We cannot guarantee the total security of smart contracts, which can be hacked or have vulnerabilities. Therefore, at Alldefi we cannot commit to return funds if the associated DEFI protocols do not release them.
- Risks of Self-CustodyIf you decide to personally safeguard your passwords, there is a risk that they may be physically stolen or hacked.
- Risk of Scams: In a decentralized market, there are more actors looking to obtain funds illegally. They can create scams or steal passwords to access your funds.
- Inaccurate informationIn a decentralized ecosystem, the veracity of all information displayed by DEFI protocols, which is often based on complex calculations and may vary between protocols, cannot be guaranteed.
💸 Development Technology
Blockchain technology is at an early stage of development, presenting more vulnerabilities than more mature technologies:
- High Risk ProductsHigh Risk Products: Given their novelty, these products may be subject to high volatility, resulting in significant and unpredictable fluctuations in their value, which could lead to substantial losses.
- Stable Currencies and ParityAlthough stable currencies are used to avoid volatility, they are also subject to risks such as vulnerabilities in algorithms or lack of liquidity in the underlying asset.
- Lack of liquidityIt may happen that an asset does not have sufficient liquidity at the time of sale.
✔️ Mitigation Measures at AllDefi
At Alldefi, although we are aware that we cannot eliminate all risks, we take measures to mitigate them:
- Preparing for RegulationWe are analyzing how to comply with the future MICA regulation in Europe and we are registered with the Bank of Spain as a custody and exchange provider.
- Rigorous AuditsWe perform exhaustive cybersecurity audits on DEFI platforms before including them. 70% of the audited platforms do not meet our minimum standards.
- Self-Custody SecurityWe work with a technology provider that prevents independent access to funds by Alldefi employees.
- Monitoring and Verification of InformationWe compare protocol data with reality and make adjustments when we find significant discrepancies.
- Product SelectionAlthough none of our products constitute a recommendation and investment, we do limit the cryptocurrencies we offer to the top 100 cryptocurrencies with the highest capitalization.
In conclusion, remember that all decisions are personal, and a full understanding of the risks is essential before participating in the DeFi ecosystem.
