"crypto markets are becoming highly interconnected with the traditional financial sector"

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DeFi is growing and is quickly on its way to becoming a new financial paradigm, yet there are financial risks in DeFi that manifest in new ways that we haven’t seen in the traditional financial system:

• Interconnections with the traditional financial system,
• Operational risks stemming from underlying blockchains
• Smart contract-based vulnerabilities
• Other governance and regulatory risks
• Scalability challenges.

In an effort to remove humans and automate as much as possible through smart contracts, DeFi has introduced or amplified these risks. This paper explores all of these aspects.