The CEO of top crypto trading firm says big mistakes in DeFi are putting off institutional investors – and putting retail investors most at risk

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There have been some high profile errors on DeFi networks recently. Andia/Getty Images
  • Mistakes in DeFi are putting institutional investors off the space, the CEO of big crypto trader Genesis has said.
  • Michael Moro said the errors show DeFi is risky, and said retail investors are most at danger of losing money.
  • Two high-profile DeFi mistakes have recently led to hundreds millions of dollars being sent to the wrong place.
  • See more stories on Insider’s business page.

High-profile errors in the DeFi world are putting institutional investors off the booming sector, according to the CEO of one of the biggest crypto trading firms.

Michael Moro, CEO of crypto lending and trading specialist Genesis, said on Thursday that the mistakes highlight the risks involved with decentralized finance, or DeFi. And he said retail investors are most at risk of losing their money.

A number of DeFi companies have been left embarrassed by major errors in recent weeks. DeversiFi and crypto trading platform Bitfinex accidentally paid $US24 ($AU33) million in transaction fees to send $US100,000 ($AU137,517) worth of cryptocurrencies across the ethereum network at the end of September.

DeFi platform Compound suffered a glitch during a routine network upgrade and mistakenly started sending out millions of dollars worth of crypto to users, putting around $US160 ($AU220) million at risk by the founder’s estimations.

“Errors and mistakes that you’ve seen certainly make [institutions] shy from doing anything in size, in any particular platform,” Moro told Insider. He mentioned hedge funds and proprietary trading firms in particular.

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DeFi is the use of crypto technology to carry out traditional financial transactions without the need for centralized parties, for example, trading without clearing houses. Its proponents say it removes counterparty risk – the danger that one party in a deal may collapse, or not fulfil its obligations.

Yet Moro said DeFi introduces new dangers, such as the chance that human errors, or mistakes in the code, are left unchecked.

Moro said retail investors dominate DeFi at the moment and so are most at risk. “The unfortunate part is that, for now, because it’s consumers, it’s retail guys that are punting around on DeFi today, it’ll be they to lose their money,” he said.

“There’s a trial and error element to DeFi, where the error will cost a hundred million plus,” Moro added. “I don’t think we have a robust enough ecosystem of auditors. I think you’re still trusting someone to have audited the code.”

Genesis is part of Digital Currency Group, which also owns Grayscale, and is one of the biggest crypto lenders and traders. It originated $US25 ($AU34) billion in crypto loans in the second quarter and traded $US29 ($AU40) billion of crypto.