What to Look for in a DeFi Protocol

Decentralized Finance (DeFi) has experienced significant growth since 2020, offering investors various opportunities to earn yields through mechanisms like decentralized exchanges and lending platforms. However, due to the sector's nascent stage and inherent complexities, it is crucial for investors to conduct thorough research before committing capital to DeFi projects. Key considerations include assessing whether the project's code has been audited to prevent vulnerabilities, understanding its real-world use case, reviewing available documentation, and evaluating the credibility of its team and backers. Stablecoins like USD Coin (USDC) are preferred for their stability and widespread adoption across blockchain networks. The risks associated with DeFi investments, including coding, oracle, financial, and regulatory risks, should be carefully weighed. An active community presence and sound tokenomics are also important indicators of a project's potential success and sustainability.