Dependency Risk

Dependency risk is the danger that a system becomes reliant on an external component, such as an oracle, a specific blockchain, or another protocol, to function. If that external component fails, the entire system can become unusable or suffer significant financial loss.

In DeFi, this is often unavoidable due to the modular nature of the technology, but it requires careful risk management and redundancy. Understanding the full dependency graph of a protocol is necessary to identify potential points of failure.

Mitigation strategies often involve diversifying dependencies or implementing emergency shutdown procedures. It is a fundamental aspect of architectural risk in decentralized systems.