how the hell it gives such insane results?
It provides a shitload of useful functions to the crypto ecosystem so it's naturally going to be very big, and the wheels are thoroughly greased by greedy fools losing their money chasing after easy gains.
how can you even know if you're not putting your money on a ponzi?
The best way is to learn to read smart contracts. But even still, there's no way to be 100% certain. You just have to get a feel for if something is suspicious or sounds too good to be true, or make peace with the modest profits well established systems like Pancakeswap or Uniswap provide.
And what is crypto being borrowed for? day traders? speculative biz? methheads needing funds for a new lab?
All of the above, but mostly the former two. One of the most common strategies is to borrow a stablecoin using BTC as collateral then trade the stablecoin for something else. Doing that allows you to hold BTC in the event of a pump while simultaneously being able to buy into a different coin.
How does the system controls the allocation of collateral in case of default?
Typically, when you put money into a defi loan platform you're provided a tokenized representation of it. The contract is programmed so that when you're overborrowed, it can execute a function that takes some of the tokens from you and sells them to pay down your outstanding balance.
are the smart contracts involved audited? by who?
Not always, but usually. There are companies like
Certik that have made a business out of charging a fee for performing audits.
Keep in mind that an audit isn't a golden shield that fixes shit code or makes scammers into honest people. There have been at least 3 dozen 'audited' projects that have gone to shit because the code review wasn't thorough enough, the developers made an update that wasn't safe, or a seemingly innocuous contract function was used to transfer all of the money out.
What prevents whoever starts a defi fund from just taking the money from the pool and run?
The contract, if it's properly written and exploit free. If it isn't? Absolutely nothing.
