Risk analysis in decentralized finance (DeFi): a fuzzy-AHP approach

Decentralized finance is disrupting the financial ecosystem through innovative, transparent, and interoperable financial solutions. Based on distributed ledger technology, decentralized finance is a nascent and rapidly evolving area. Decentralized finance protocols are witnessing a perfect storm (in terms of growth). However, this emerging area needs sober consideration as these financial technologies possess unique risks for users, makers, regulators, and other stakeholders. The current research aims to identify and prioritize risks in decentralized finance. The present study conducted an extensive survey of the literature to identify various risks involved in decentralized finance. For empirical analysis, the study collected data from 90 experts. A fuzzy analytical hierarchical process (F-AHP) was applied to prioritize various risks in decentralized finance. Pairwise comparison and weights of all the criteria and sub-criteria revealed that technical risks are the most significant ones, followed by legal, regulatory, and financial risks. Among the sub-risks, financial risks are at the highest level, followed by smart contract risks and transaction risks. The outcomes of this research have several implications for regulators, policymakers, entrepreneurs, technologists, and practitioners. These stakeholders can focus on these vulnerabilities and offer more sustained solutions in the future.