How DeFi deposits get lost, and the questions that help
Seven failure patterns, explained without hype or jargon. Each guide ends with a checklist of questions to ask before you deposit anything.
Risk at a glance
| Risk | What goes wrong | What's exposed | Guide |
|---|---|---|---|
| Smart contract | Bug or exploit in the code | All funds in the contract | Read |
| Oracle | Wrong or manipulated price feed | Bad liquidations, drained pools | Read |
| Stablecoin depeg | Coin trades below its target | Pool positions, collateral, savings | Read |
| Custody | Platform or key-holder fails | Everything held by that custodian | Read |
| Bridge | Cross-chain lock or messaging fails | Wrapped tokens lose backing | Read |
| Liquidation | Collateral price falls | Collateral plus penalty | Read |
| Wallet security | Phishing, approvals, leaked seed | Everything in the wallet | Read |
Smart contract risk: what can break when code holds your funds
How DeFi smart contracts fail, from code bugs and admin keys to inherited dependencies, with a cover-cost example and questions to ask before depositing.
Risk 2Oracle risk: how a bad price feed turns into real losses
Follow a price-oracle manipulation step by step, see how a time-weighted average changes the numbers, and learn what depositors can check before they lend.
Risk 3Stablecoin depeg risk: what holds a peg and what breaks it
How stablecoins hold a peg, how they lose it, what a depeg does inside a two-coin stable pool, and where Canada's stablecoin rules stand as of October 2026.
Risk 4Custody risk: platforms, contracts and your own keys compared
Compare platform custody, smart-contract custody and self-custody, see what Canadian rules and CDIC do and do not cover, and price counterparty risk yourself.
Risk 5Bridge risk: wrapped tokens, validators and the cost of crossing
How cross-chain bridges work, why wrapped tokens are only as good as their backing, what crossing costs, and the questions to ask before you move funds.
Risk 6Liquidation risk: how a collateralized loan gets closed for you
A worked example of DeFi liquidation: health factor, liquidation price, penalty and interest drift, plus how leverage loops shrink the cushion before a sale.
Risk 7Wallet security: a practical checklist for self-custody
A plain checklist for wallet security: storing a recovery phrase offline, reviewing token approvals, reading what you sign and spotting common crypto scams.
Questions people ask
What is protocol risk in DeFi?
The chance that the code, price feeds, collateral, custody arrangements or bridges behind a DeFi service fail in a way that loses some or all of your deposit.
Does an audit make a protocol safe?
No. An audit reviews code at a point in time; it reduces some risks and leaves others, including later upgrades, oracle design and economic attacks.
Is there deposit insurance for DeFi?
No. CDIC lists cryptocurrencies, including stablecoins, as not covered, and protocols themselves aren't CDIC members.