Decentralized finance bundles several types of risk into a single interface. A high yield can be compensation for leverage, token emissions, thin liquidity, smart-contract exposure, or all of them at once.
Map the dependency layers
Start with the application, then list the underlying blockchain, bridge, oracle, stablecoin, collateral, governance system, and front-end dependencies. A protocol can be technically sound while still inheriting fragility from one of these components.
Test the exit
Displayed value is not the same as realizable value. Review pool depth, concentration, withdrawal conditions, liquidation mechanics, and how the system behaved during prior periods of stress.
Include user error
Wallet approvals, phishing, address mistakes, compromised devices, and poor key backups remain common failure modes. Operational discipline is part of risk management.