Hacks, Exploits, and Rug Pulls
Crypto has some unique properties that are both features and pose new problems. Self custody, implicit anonymity, low barrier to entry, hacks, rugs, and exploits, the inability to patch deployed code, 24 hour trading, lack of regulatory oversight and insurance, and lack of interception mechanisms all pose risks that didn’t exist in TradFi.
Self-Custody exposes users to the ability to lose access to their wallets with the loss of a mnemonic or private key. Private key exposure can grant unlimited and permanent access to bad actors. Both problems are without any means of reconciliation. It’s fair, but it’s brutal.
Anonymity means that there’s limited legal recourse in a conflict. This is exaggerated by the low barrier to entry, allowing rugs and ponzis and scams oh my! to be deployed by anyone, despite having no credentials, oversight, or accountability.
Some projects actively seek out accreditation from TradFi institutions, but that is the exception, not the rule. Even if the developers have the best of intentions, the nature of smart contracts makes them impossible to fix. Protocols usually need their users to migrate their own assets in case of a smart contract code mistake. If you accidentally are giving out 10x the tokens than you intended, too bad, it’ll keep doing it, because you can’t change it. It’ll be traded around the clock, so you’d best not go to sleep post-launch.