DeFi: A risky business or silver bullet for SMEs?

Abstract

Small and Medium Enterprises (SMEs) contribute significantly to the society and the economy however, most of their financing needs throughout their life cycle remains unmet by traditional financial channels. Fintech solutions help to fulfil this gap through advanced digital economic tools such as Decentralized Finance (DeFi) that are powered through the underlying blockchain technology. While this might seem to be a silver bullet for most financing problems faced by SMEs, there are issues pertaining to cyber security when SMEs adopt such technologies. SMEs are already seen as lucrative targets for cyber-attacks given their poor cyber hygiene practices, lack of investments coupled with huge skills gap in implementing cyber best practices for improving their resilience. Adoption of DeFi without completely understanding the underlying ecosystem might further exacerbate the cyber threats they face. This calls for further research and implementation of socio-technical solutions that will help SMEs understand better the DeFi ecosystem and implement effective solutions. In this paper, the unique challenges that SMEs face pertaining to security, risk and vulnerability management and potential mitigation strategies to improve their resilience are outlined in the UK context.