How to Boost Smart Contract Security and Mitigate Risks in DeFi

In the world of cryptocurrencies and decentralized finance, security has always been one of the top priorities. And it’s no wonder — everyone wants to be sure that their personal data, as well as funds, won’t be stolen.

Unfortunately, the industry has faced more hack attacks recently, and only a few projects are ready to move with the times and boost the security of their smart contracts and protocols.

That’s why today, we’d like to bring this issue up and discuss the ways DeFi security can be compromised, and how protocols can protect users. Moreover, we’ll reveal more details on how we help the DeHive team keep their platform and crypto indexes secure during these uneasy times. So off we go!

DeFi market security overview

The DeFi industry has never been secure. Sad but true. Over the last ten years, the market has experienced 226 different security incidents that have led to $12.1B stolen from various protocols and platforms. What is more, one-third of these hacks and breaches were reported in 2021.

Map of Security Breaches and Fraud Involving Crypto 2011–2021, source: crystalblockchain.com

Overall, from January 2011 till December 2021, there have been 120 security attacks, 73 DeFi protocol exploits, and 33 fraudulent schemes. You might have heard of some of them, including the recent Badger DAO hack that resulted in a $120M loss or the biggest Ponzi scheme in history that led to a $2.9B loss.

Of course, some of these 226 incidents might have been prevented or the losses could have been minimized if protocol owners were more concerned about their project security. Yet, sometimes, the breaches occur due to mere neglect or carelessness.

That’s why we offer you to look through various DeFi security risks, hoping that they will come in handy when protecting other protocols.

Main security risks in DeFi

There are dozens of ways the protocol security can be jeopardized — from tiny bugs in the smart contract code to more severe problems. Let’s talk about the most common risks and types of attacks in DeFi.

• Code vulnerability. Simple coding mistakes can lead to pretty serious losses if a team hasn’t checked smart contracts before deployment or neglected security audits.
• Smart contract logic. Occasionally, some inexperienced developers or auditors might miss the lack of logic in the whole smart contract and its underlying processes. For this reason, we believe that the knowledge of business processes and traditional financial instruments is a must while dealing with DeFi.
• Access control. If smart contract access control is implemented inefficiently or not at all, hackers could gain privileged access to a smart contract and exploit value to their advantage.
• Liquidity pool estimates. If a project team hasn’t calculated the value of tokens in the liquidity pool correctly, bad actors might perform flash loan attacks leveraging smart contract vulnerabilities for their benefit.
• Compromised private keys. The DeFi security risks connected with stolen or leaked private keys emerge due to poor key generation practices with an insufficient source of randomness. Besides, they might occur due to a loss or theft of the seed phrase used to remember a private key.
• Frontrunning attacks. Hackers might look for the transaction they could compromise by leveraging the Miner Extractable Value (MEV) and including it in the ledger prior to the original one, thus, getting profit.
• Ponzi schemes and rug pulls. Unfortunately, some DeFi security risks emerge not from some external threats but from protocol owners and project teams. It’s a shame that such cases still take place since they decrease DeFi credibility and impede global adoption.
• Flash loan attacks. One of the most common security risks in DeFi in the last couple of years is flash loan attacks. Flash loans are a form of uncollateralized loans that can let bad actors borrow governance tokens and manipulate the protocol to their advantage. Such attacks are pretty popular these days since they are comparatively low-risk and low-cost, while bringing high rewards.

As you can see, the DeFi industry is far from being a bank vault. Yet, there are several things protocol owners can do to protect their products and users.

READ 9 MOST COMMON SMART CONTRACT VULNERABILITIES FOUND BY BLAIZE.

How to protect a protocol

At Blaize.Security, we deal with DeFi security on a daily basis, so we’ve decided to share several recommendations on protecting a DeFi protocol and mitigating risks. Previously, we posted a longer article on this topic, so we’ll just add the key points below, but you can check out the full piece for more details and examples.

1. Perform a full unit test to detect the functionality problem in separate parts of the contract and eliminate them at the very beginning.
2. Contact several auditors to conduct a smart contract security audit. This will help you detect uneven and unexpected vulnerabilities of smart contracts before project deployment and, therefore, prevent DeFi hacking.
3. Ensure code uniqueness. Copy-pasting code from other protocols might speed up development but lead to future exploits due to incompatible pieces of code that don’t go together.
4. Take care of contracts’ access protection. To prevent unnecessary private key access or protect your DeFi protocol in case of key loss, consider using a separate multisig contract or the multisig logic within your protocol.
5. Hire an experienced team of DeFi developers with accurate knowledge of DeFi project vulnerabilities and specifications.
6. Turn to your protocol community to help with bugs and mistakes. Launching a bug bounty campaign will allow you to improve the user experience within the protocol and successfully defend it from potential hacks.

GET TO KNOW MORE ABOUT OUR BLAIZE SECURITY SERVICES.

How Blaize.Security helps protect DeHive protocol

Our team was creating the DeHive platform and all the financial tools that lay within it with the end-user in mind. That’s why security has always been and remains our top priority.

As our highly skilled developers finished working on the DeHive smart contract, we conducted an internal smart contract audit to make sure that it is as secure as possible. Besides, we’ve contacted two other leading auditing teams, Hacken and Zokyo, to conduct our smart contract security audits. This way, we could double-check the protocol and make sure that it is safe for users and smart contracts can be deployed.

You might check the final reports on these smart contract audits via these links: Hacken, Zokyo.

On top of that, we’ve created a crypto index technology that uses the most secure DeFi solutions and allows us to have no real access to users’ funds. Let us tell you a bit more about that.

If you haven’t heard of DeHive before, it is an asset portfolio management platform that allows users to benefit from highly secure crypto indexes.

DeHive Clusters are yield-generating crypto indexes that unite the best-performing assets into one basket. Every index is carefully composed by DeHive experts to reflect a particular market segment, bring maximum profit, and provide users with a secure way of investing in different protocols.

Such a solution aims to facilitate traders’ lives and enable making profit in just one click, simultaneously mitigating market fluctuations due to portfolio diversification. Besides, the team has rejected AMM technology and substituted it with advanced oracles, which made the protocol even more secure.

As we’ve already mentioned before, DeHive does not have any real access to users’ funds. All deposited money is stored either on the Cluster contract, which works as a security vault, or in the original farming protocol. This protocol’s strategies are optimized regularly, so it ensures higher security of all DeHive instruments.

With all these tools and strategies, the team is providing DeHive users with a safe space to get maximum profit in DeFi and stay confident in their tomorrows.

If you’d like to learn more about DeHive and its financial products, check out these resources:

• Crypto Indexes, and How They Are Better Than Regular Cryptocurrencies
• DeHive Impulse: Automatic Compound Interest for DeFi
• DeHive 2021–2022 Roadmap
• DeHive Whitepaper

The Final Word

In the ever-changing world of DeFi, protocol security is the key to project success, and we are proud to say that we’ve helped many businesses achieve it.

We hope that more projects will prioritize security in the future and take proper care of their smart contracts, protocols, and most importantly, users. We’d really love to build a highly secure DeFi future together, and it’d be fantastic if you joined us on this journey.

Article source: Blaize blog https://blaize.tech/services/how-to-boost-smart-contract-security-and-mitigate-risks-in-defi/