Being the rapidly growing blockchain-based movement at present, Decentralized Finance triumphs over the traditional financial system in several ways, including security, transparency, efficiency, and immutability. To keep pace, many fintech companies have started to integrate blockchain technology into their services and applications. However, the learning curve is still quite prominent among users when it comes to navigating their way to the emerging Defi lending platforms.
Below are the mistakes that users commonly make despite their experience in the DeFi landscape. Let’s take a look at how we can avoid this in the future.
- Rushing in without having adequate knowledge
As the popularity of DeFi is skyrocketing recently, many people are inclined towards taking part in the DeFi space without proper knowledge. Since DeFi systems are significantly different from conventional fintech apps, it is rather common to find the operations of DeFi apps alien to users, which leads users to make mistakes. In DeFi, the user is in full control over their funds without the intervention of a middleman. The transactions are also immutable and permanent, which means they cannot be reversed once done.
- Inability to keep private keys secure
In order to access a crypto “address” and the funds within it, every DeFi app and service provides a private key for the user. This key serves as the security measure in the DeFi landscape, which is derived from a “seed phrase” of 12 to 24 words. Since the private key is responsible for accessing all the funds, it is critical for a user to keep it safe by storing it offline, on local devices, or by using a dedicated hardware device.
- Avoiding official interfaces
It is always better practise to use the official interfaces whenever you are using a DeFi app, software, or browser extension. Make sure you are interacting with a reliable version of the application or software that you are using to eliminate the risk of any type of risk.
- Sending crypto tokens to the wrong address
Transactions in DeFi are immutable, which means they cannot be reversed once made, unlike in a conventional financial system. Since all crypto transactions are permanent, users need to take the utmost care when sending tokens to the right addresses as well as providing their addresses to receive transfers. Although users can get protection against typos, there are other mistakes related to addresses, including transferring tokens to a smart contact address or to an incorrect exchange deposit account.
- Having misconceptions regarding DEX and CEX
Although both CEX and DEX work in different ways, both systems help users trade crypto tokens. A decentralised exchange enables direct P2P crypto transactions, while a centralised exchange is regulated by a third party that is responsible for controlling the funds of the users. DEXs also provide better security than CEXs by allowing users to trade from external crypto wallets.
When it comes to experimental technologies, there are always risks associated with them. However, one can always rely on thorough research and due diligence to avoid these mistakes in the future.