Trust in a smart contract can be a risk factor. The risk is minimized by the number of users who use the smart contract. In principle, the situation is similar for any investment. The more people participate and thus trust, the more the reputation of an investment or company increases. This is not so different from investing in shares or even trusting a bank.
In addition, so-called audits are also carried out for the market-leading smart contracts. Independent institutions put the code through its paces. The code of a smart contract can be thought of in the same way as the statutes of a contract, which stipulate what happens if a contracting party acts in accordance with the contract or even if it violates it. But automatically. The whole thing thus becomes a so-called DAO (a decentralized autonomous organization). A virtual company that exists through this code and acts fully independently. If such a code runs once, it cannot be changed simply from the outside. So it is relatively safe against what can be caused by hacks in common centralized systems. This is because the rules of the contract cannot be changed once it has been signed by the participants.
Another security factor is the fact that the code is publicly visible and can therefore be audited. A gross violation would quickly be noticed by participants or in audits. Risk assessments can therefore be carried out for smart contracts. We inform you for each smart contract you use, which risk exists. This assessment is done by an independent service provider and also verified by us. Depending on your risk appetite, you can decide for yourself which service you want to use.
The fact that a smart contract is public does not make it secure at the same time. Initially, only those smart contracts should be used that have proven themselves at least through their frequent use. In the end, developers and companies that created it are also behind these automatically acting companies. In the end, it is the same as with any publicly available software. New versions of smart contracts are also published. Such further developments are definitely signs that they are accepted and used by a majority. However, software will never be one hundred percent free of errors. But the same is true for your banking software. In such cases, however, there are institutions that may be liable.
Additional insurance policies can also be taken out for smart contracts to protect against possible unforeseeable misconduct. These insurances exist for many scenarios in the decentralized financial sector, just as they do in the traditional sector.
If a current smart contract has been checked by a large number of users and auditors, there is no greater risk than for any other software that has undergone such a checking process.