Decentralized Finance (DeFi) has emerged as a transformative blockchain-based financial system, eliminating intermediaries through peer-to-peer networks and smart contracts. This chapter explores the adoption drivers and risk challenges of DeFi focusing on ERC-20 tokens and leveraged tokens (LVTs), which are integral to its ecosystem. ERC-20 tokens as standardized smart contracts enable interoperability across decentralized applications (dApps) but face security vulnerabilities, such as the Multiple Withdrawal Attack (MWA) which remains unresolved. LVTs akin to leveraged Exchange-Traded Funds (ETFs) introduce amplified returns but carry risks like volatility decay and rebalancing complexities. The study highlights Ethereum’s dominance in DeFi with its robust smart contract ecosystem facilitating innovations like Aave and Uniswap, while also exposing vulnerabilities, as evidenced by the $60 million TheDAO exploit. This chapter critically analyzes protection mechanisms for ERC-20 tokens and LVTs, proposing solutions to mitigate MWA and enhance security. Additionally, it examines the compounding effects of volatility in LVTs and their reliance on crypto derivatives and DeFi lending markets. By addressing these challenges, the research underscores the need for rigorous audits, security-by-design principles, and improved standards to foster a resilient DeFi ecosystem. This chapter contributes to the broader discourse on blockchain security offering insights for developers, users, and policymakers navigating the evolving landscape of decentralized finance.