Risks and Solutions in Islamic Decentralised Finance *

Abstract

Decentralised Finance(DeFi) is a relatively new concept of banking and finance that relies on peer-to-peer payments enabled by the blockchain technology. Blockchain technology allows DeFi to provide financial services bypassing the traditional financial intermediaries, like banks or brokers. It is an innovative technology that is making a significant influence on the modern society due to its unique characteristics of security, decentralised nature and transparency. Although DeFi has rapidly evolved and has the potential to revolutionise the banking and finance industry, it is a fairly a new concept as compared to the traditional centralised systems and therefore participants should be aware of considerable risks and challenges linked with it. Thus, a systematic literature review was conducted to examine the different types of risks and challenges associated with DeFi, along with the suggested solutions to mitigate them or lessen them. Our analysis of the literature led us to classify the challenges into some categories that aim to give a fair sense of the challenges from a broader perspective without digging too deeply into any one particular issue. Although, DeFi is indeed a revolutionising technology, the knowledge of these risks in DeFi can help us to utilise the resources more efficiently to achieve our goals in this sector.