DeFi’s Boom and the Importance of Smart Contract Audits
It’s often joked about that the cryptocurrency ecosystem is the Wild West of investments and finance. And there is no denying that there are many shady corners in this now rapidly developing market. Decentralized Finance is of course no exception to all of this. While certainly revolutionary and groundbreaking, the DeFi space certainly packs a lot of punch behind all the praise it might be receiving.
What’s All the Fuss About?
Smart contracts on the blockchain allow currency competition to flourish under the standards of decentralization, trustlessness and immutability. And with the ability to have tokens and decentralized Apps under the same ecosystem, anyone can transfer value from one dApp to another in mere seconds. This innovation initially brought forth by Ethereum has now transmuted to several so-called “EVM compatible” blockchains. Including but not limited to theBinance Smart Chain, Fantom Opera, Polygon, AVAX and HECO with even more coming.
With all these DeFi enabled blockchains coming out, so do new opportunities. Developers rush to push their projects to production and latch on to the latest trends, new services pop out left and right and interoperability also increases. It’s indeed becoming increasingly easier to move value between different blockchains as more and more cross-chain bridge services come out.
We’re now reaching a point where ever-increasing monetary value keeps being injected into DeFi on the daily. And with all the unique opportunities, it’s no wonder users are rushing to take advantage of the space’s boom by investing early, looking to earn through the various dApps of up and coming projects. All while developers also do their best to catch up with innovations between blockchains and compete with each other’s innovations.
As of now, even the most established use cases of DeFi such as yield optimizers, decentralized Automated Market Maker exchanges and collateralized loan platforms are getting new twists on their tokenomics by new developers that come up with competing platforms. But while ease of use and the allure of high profits can appear attractive, the rush to innovate can lead to many mishaps.
Sadly, investments in DeFi and activities such as yield farming have come to be considered quite risky. Especially given all the very recent exploits that raked in tens of millions for malicious parties attacking DeFi projects, it’s no wonder that investors and newcomers in crypto might be wary of putting money in new projects of the space. Indeed, aside from all the potential for innovation that comes with DeFi, smart contracts also leave the door open to a near-infinite amount of bad outcomes if best practices aren’t followed.
Notice how all of the top DeFi exploits that lead to user funds being stolen happened in the span of the last few months; with some of the biggest ones taking place this year alone. We’ve also written about how easy it would have been to catch out and prevent certain exploits like with Meerkat Finance (where a single variable name lead to the theft of $31m in value stolen) in our blog.
The Importance of Smart Contract Audits
Αmid all the hype and marketing designed to lead people to develop “fear of missing out”, the merits by which a project should be judged by might not be distinctively clear to most yet. It might look easy to earn money by participating in this emerging “blockchain revolution” and the projects that arise out of it, but undeniably, inexperienced users might have very little defense against potential scams.
Things shouldn’t be like that though! Smart contracts allow for dApps to be completely trustless and immutable. Meaning that attack vectors can be entirely done away with by following good practices. In short, if a smart contract is written well, anyone using it wouldn’t need to trust its developer, as the code would run in a decentralized manner where the devs couldn’t affect it in any way with the smart contract only being able to do what it’s supposed to.
While it’s already fairly easy for individuals to put funds into DeFi, most potential investors are right to be wary about where they put their money. This is a barrier each developer needs to overcome after all the incidents in the space. It’s become known by now that with smart contracts even simple oversights by developers can lead to big losses. Proving a smart contract’s security is no easy task for sure, but it’s certainly possible with the right expertise. And that’s precisely where an external audit could be very useful.
With DeFi, It’s Different
External audits are not a new concept. Manufacturers get inspections from authorities to guarantee everyone’s safety is taken into account, financial firms are audited by certified accountants to prove their assets and so on… Oftentimes also firms hire external auditors on their own accord simply to make sure their internal auditors didn’t miss anything critical. With code especially, there’s a lot of value in having some external organization look at how your application functions and point out potential inconsistencies that might have been missed; something that applies doubly when handling other people’s money.
The core difference between audits for DeFi and centralized processes however is that with DeFi, you wouldn’t be getting an audit solely so you can be trusted. Instead, you’d be getting an audit in order to prove your code (which will be running independently on the blockchain) is trustless and immutable. Therefore, even if you as the developer of a project had turned rogue, the damage you could inflict on users could potentially be very limited to non-existent.
Smart Contract Audits as an Industry Standard
Smart contract audits should be something users demand before investing and something developers seek out when releasing their projects. It’s a small initial investment by developers, but the findings of an audit can prove to be of immense value. Addressing potential vulnerabilities and ensuring security before any damage can be caused is something that could have saved many projects from going bust. Even for the industry as a whole, if extensive auditing is to become a standard, DeFi investments would look more sustainable and everyone in the space would benefit from the increased security and growth.
What Obelisk Can Do for You
At Obelisk our expertise lies in auditing smart contacts, development and security. We strongly believe that the foundation of building successful projects in the Decentralized Finance space is good security and we always strive to help our partners succeed and realize their ambitions through our auditing services. If you are an investor looking to safely delve in a DeFi project, a developer seeking to launch a new blockchain project or perhaps an already established project looking to improve security, transparency and gain the community’s trust then we would love to hear from you. Get in touch about your audit now through the channels below: