Overview
Smart contract risk is the risk of loss from bugs or exploits in smart contract code. It is inherent to DeFi and on-chain applications. Audits and testing reduce but do not eliminate it.
How It Works
Bugs in contract logic can be exploited to drain funds or break functionality. The risk is highest in new or unaudited code. Mitigations include audits, bug bounties, and insurance.
Why It Matters
Smart contract risk is a primary risk factor in DeFi. Users must assess it when using protocols. It justifies insurance and careful due diligence.
Related Concepts
Smart contract risk relates to Audits, Reentrancy, and Bug Bounties. It is a core DeFi risk.