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Should You Be Worried About Providing Liquidity?

· 6 min read
Liquidity Master
DeFi Educator and Strategist

If you've been following crypto news lately, you might be asking yourself: Should I even be providing liquidity right now?

Web3 is Going Great Webpage Screenshot, Header

The headlines are brutal. Web3 is Going Just Great tracks a constant stream of exploits, rug pulls, and hacks. Just in the past few weeks, we've seen Truebit lose $26 million, Yearn Finance get exploited for the fourth time, and Trust Wallet's browser extension compromised in a supply chain attack. The list goes on and on.

So should you be worried? The honest answer is: Yes, you should be concerned. But that doesn't mean you should avoid liquidity provision entirely.

We're Realists, Not Optimists​

Let's be clear about something: Crypto is dangerous. DeFi is dangerous. Smart contracts are dangerous. If you're providing liquidity, you're taking on real risks that can result in total loss of your capital.

We're not here to sugarcoat this. We're realists. We want people to be careful. We want people to understand what they're getting into before they deposit their first dollar into a liquidity pool.

The reality is that even the most established, audited protocols can be exploited. Balancer, one of the oldest and most respected DeFi protocols, has been hacked three times-including a $110 million exploit in November 2025. Yearn Finance has been exploited four times. These aren't fly-by-night projects. These are protocols with multiple audits, years of battle-testing, and millions of dollars in TVL.

If you're going to provide liquidity, you need to accept that smart contract risk is real and potentially catastrophic.

The Numbers Don't Lie​

The Web3 is Going Just Great timeline is sobering. It's not just a few bad actors or poorly coded projects. It's a constant stream of exploits, scams, and failures across the entire ecosystem.

In December 2025 alone:

  • Truebit lost $26.4 million to a smart contract bug
  • Yearn Finance suffered its fourth exploit
  • Ribbon Finance lost $2.7 million
  • Flow blockchain was exploited for $3.9 million
  • Trust Wallet's extension was compromised, costing users $7 million

And that's just one month. The pattern repeats month after month, year after year.

This isn't FUD. This is reality. The DeFi ecosystem is still young, and smart contract security is incredibly difficult. Even the best developers make mistakes. Even the most thorough audits miss vulnerabilities. Even the most established protocols can be exploited.

Should You Invest Money You Can't Afford to Lose?​

Absolutely not.

This is the most important rule in crypto, and it applies doubly to liquidity provision. If you're providing liquidity, you should only use money that you can afford to lose completely. Not money you need for rent. Not money you're saving for retirement. Not money you're counting on for next month's bills.

Why? Because the risks are real:

  • Smart contract exploits can drain entire protocols
  • Impermanent loss can eat into your capital even if fees are good
  • Rug pulls can happen on any chain, in any protocol
  • Bridge hacks can lock or steal your assets
  • Protocol failures can leave you unable to withdraw

If you can't afford to lose it, don't put it in DeFi. It's that simple.

But Here's the Thing: You Can Protect Yourself​

Just because the risks are real doesn't mean you should avoid liquidity provision entirely. It means you need to be smart about it.

Stick to Established Protocols​

Not all protocols are created equal. Uniswap, Curve, Orca, and Raydium have been around for years. They've been battle-tested. They've survived multiple market cycles. They have strong teams, active communities, and ongoing security audits.

This doesn't make them immune to exploits-as we've seen with Balancer and Yearn-but it does make them significantly safer than new, untested protocols promising unrealistic yields.

Diversify Your Risk​

Don't put all your capital in one protocol, one pool, or one chain. Spread it across multiple platforms. If one gets exploited, you won't lose everything.

Understand What You're Doing​

Before you deposit into a pool, understand:

  • How the protocol works
  • What the risks are
  • What happens if price moves
  • What happens if the protocol gets exploited
  • How to withdraw your funds

If you don't understand it, don't invest in it.

Consider Smart Contract Insurance​

For high-value positions, you can purchase insurance coverage through decentralized insurance protocols:

  • Nexus Mutual - Decentralized insurance for smart contract risk on Ethereum
  • InsurAce - Multi-chain DeFi insurance covering smart contract exploits
  • Unslashed Finance - Decentralized insurance protocol
  • Risk Harbor - Parametric insurance for DeFi protocols

Insurance isn't free-you'll pay premiums-and it may not cover every type of loss. But for large positions, it can provide peace of mind and financial protection if a protocol you're using gets exploited.

Important: Always read the insurance terms carefully. Understand what's covered, what's excluded, and how claims are processed. Insurance is a risk mitigation tool, not a guarantee. Many of these services are blocked for US users.

Start Small​

If you're new to liquidity provision, start with small amounts. Learn how it works. Understand the risks. Get comfortable with the mechanics. Then, if you're still interested and you understand the risks, you can scale up.

Monitor Your Positions​

Don't just deposit and forget. Check on your positions regularly. Monitor protocol news and security updates. If a protocol you're using gets exploited or shows signs of trouble, be ready to withdraw quickly.

The Bottom Line​

Should you be worried about providing liquidity? Yes. The risks are real, and the exploit timeline at Web3 is Going Just Great proves it.

But should you avoid liquidity provision entirely? Not necessarily. If you:

  • Only invest money you can afford to lose
  • Stick to established, audited protocols
  • Diversify your risk
  • Understand what you're doing
  • Consider insurance for large positions
  • Start small and scale up gradually
  • Monitor your positions actively

...then liquidity provision can be a viable way to earn yield in crypto.

The key is being realistic about the risks and taking steps to protect yourself. We're not here to convince you that DeFi is safe. We're here to help you understand the risks and make informed decisions.

If you're not comfortable with the risks, that's perfectly fine. There's nothing wrong with staying out of DeFi. But if you are going to provide liquidity, do it with your eyes wide open.

Learn More About Risks​

Remember: This is not financial advice. We're educators, not advisors. Always do your own research, understand the risks, and only invest what you can afford to lose.