# Why DeFi can be risky

There are three primary categories of risk in DeFi.

Technical risk arises from smart contract vulnerabilities. Even audited contracts can contain undiscovered bugs or edge cases that may be exploited.

Economic risk stems from how the protocol is designed and how participants are incentivized to behave. This includes unstable collateral models, liquidity imbalances, oracle manipulation, and misaligned incentives.

For example, if a protocol relies heavily on token rewards to attract liquidity, that liquidity may leave quickly once incentives decrease. This can lead to sharp drops in available liquidity, increased volatility, or stress in lending and liquidation mechanisms.

Governance risk emerges when decentralized voting mechanisms alter parameters or expose users to malicious proposals.

Some of the most significant failures in DeFi history were caused not by coding errors, but by economic design weaknesses.

Shift was built to systematically evaluate these risks before capital is allocated.

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