Ethereum co-founder Vitalik says DeFi users underestimate the potential risks of smart contracts

Ethereum co-founder Vitalik Buterin issued a warning in a themed interview for Ethereum's fifth anniversary, stating that there are smart contract risks in DeFi protocols, but many people are turning a blind eye to them. He emphasized that liquidity mining is only a short-term incentive measure and is difficult to sustain in the long term.

DeFi Is Good, But Not That Good

In a recent Unchained Podcast episode titled "Vitalik Buterin on Ethereum's Fifth Anniversary" released on July 28th, host Laura Shin had a deep conversation with Ethereum co-founder Vitalik Buterin that lasted nearly an hour and a half. During the program, Vitalik Buterin shared his thoughts and feelings on Ethereum's fifth anniversary, solutions to the high transaction fees on the Ethereum network, whether the complexities of Ethereum 2.0 pose security risks, whether staking will bring more price attention to ETH, and issues related to monetary policy.

Additionally, Vitalik Buterin also shared his concerns and criticisms about the DeFi space. When asked by host Laura Shin about his views on DeFi becoming an industry focus, Vitalik Buterin expressed his concerns:

"I think the biggest problem is that many people underestimate the risks of smart contracts."

He stated that the higher interest rates in DeFi compared to traditional bank accounts mean that the risks of DeFi products are also relatively higher, with a much higher likelihood of "platform bankruptcy," and even audited platforms and protocols cannot guarantee that the expected percentage profit within a set time frame will not be compromised.

"DeFi is still good, but it shouldn't be advocated as a good place for the average person to put their life savings into."

Amid the trend of high interest rates, it seems that most people have forgotten that the DeFi space has suffered multiple attacks this year due to smart contract vulnerabilities. For example, in February, the bZx Flash lost nearly $1 million in cryptocurrency due to a vulnerability, and in June, Bancor was also attacked due to smart contract vulnerabilities.

Liquidity Mining Difficult to Sustain

Regarding the current market focus on "liquidity mining," Vitalik Buterin also expressed concerns about its "unsustainability." He mentioned that the high returns on interest are paid through decentralized financial protocols by borrowing, and platforms cannot attract people to their ecosystem indefinitely through coin issuance and mining.

"This is a short-term phenomenon, and once the attraction fades, you are likely to see the yield drop to near-zero levels immediately."

Not Denying the Value of DeFi

However, Vitalik Buterin is not blindly critical of DeFi. At the Ethereal virtual summit in May of this year, Vitalik had expressed his views on the multiple attacks on DeFi. He stated that many responsible DeFi projects have been around for quite some time and have not been attacked, and that "hacking" is definitely not an inherent attribute of DeFi, but rather something that centralized entities cannot avoid. Vitalik pointed out the regularity of attacks on centralized entities and stated that centralized finance will certainly be repeatedly attacked.

On the other hand, host Russo also pointed out that the open-source nature of many DeFi and cryptocurrency projects could be a factor in hacker attacks, as publicly providing the code for these projects could make it easier for hackers to understand their internal mechanisms. Vitalik acknowledged that this could be a problem, but at the same time, open-source code allows others with the ability and willingness to audit and contribute, which is not without benefits.