Decentralized finance is experiencing renewed momentum. The activity in new ecosystems, and the high yields, resemble the famous 2021 DeFi Summer. The variety of innovative protocols makes it incredibly hard for investors to keep up, while at the same time, the impressive growth raises concerns about risks accumulating in the DeFi ecosystem.
The biggest risk in the current DeFi market is not based on mechanistic failures such as those that caused the collapse of Terra, but rather on three key factors: scale, complexity, and interconnectivity. To illustrate these factors, consider the differences in quantifying risk for a basic AMM with a few hundred million in TVL versus an AMM that uses restaked assets with their corresponding point systems and introduces its own tokens and points. The former risk model can be solved with basic statistical or machine learning methods.