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The Financial Stability Board Alarmed Over Vulnerabilities of the DeFi&nbsp

According to the latest report from Financial Stability Board (FSB), DeFi is changing rapidly. Even with the fast changes, the report says that the operations still don’t differ from conventional financial operations. In the latest report, they accused DeFi of trying to imitate the workings of conventional financial operations.

They also went ahead to warn that it (DeFi)  may end up inheriting the vulnerability of the whole system as well. This latest report did well in alerting the similarities in the conventional financial system while criticizing the operations of the DeFi according to its extent of decentralization.

This report has to some extent revealed the dangers of cryptocurrency bridges, as well as the bugs that are often seen in the smart contract. These bugs, expert says supports all DeFi applications. Meanwhile, the FSB, while commenting on the issue stressed that the most area of vulnerability of the DeFi is the “run risk” available on the stablecoins and lending platforms.

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Also, it was stated in the report that the default liquidation of collaterals in any smart contract, which can also be unevenly applied among the participants depends largely on the design of the protocol. It was further revealed that this is how destructive deleveraging techniques can be for DeFi. 

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The New DeFi Operations Explained

FSB believes in the idea that conventional financial operations and its system of compliance try as much as possible to avoid what they called coordinated liquidation. According to FSB, measuring the number of leverage in DeFi is a difficult process, and that’s why it is even more difficult to single out what each firm describes as a Collateral Chain, which is often used in loan transactions.

The FSB was also reported saying that in a situation where DeFi systems are designed to significantly increase hence, becoming more obvious as a result of the boundary adoption of cryptocurrency assets in real-time scenarios. It is also said that the interlinkages among these crypto assets might decrease while spillovers in the conventional financial system in the real-world economy may increase.

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Brenda Collins

Brenda Collins is a seasoned crypto news writer with a deep passion for blockchain technology and its transformative potential. With years of experience in the industry, she has honed her skills in delivering concise and insightful analysis, making complex concepts accessible to a wide audience. Brenda's dedication to staying up-to-date with the latest developments in the crypto world ensures her readers receive accurate and timely information.

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