DeFi was an idea that has been around since blockchain technology started making waves. However, 2020 has seen that dream almost come to fruition. Today, DeFi is one of the most lucrative areas in the cryptocurrency business, and investors recognize that. With more than $13 billion in assets in place, DeFi projects are looking to change things up in the world of finance. Although the progress is fantastic, several illegitimate projects have come to light. This reminds us of the initial coin offering (ICO) booms back in 2017 and how things went south from there.
For instance, Harvest Finance, one of the major decentralized protocols, was hacked recently. The person behind it made away with a cool $24 million from their pools. Another major event that shocked the DeFi world involved SushiSwap, whose creator absconded with about $13 million of development funds which inadvertently caused the market to crash. And then, of course, there was Value DeFi, whose systems were compromised using a loan exploit and made away with about $6 million.
Although these were isolated events, they bring up the question of security in DeFi applications. According to the site DeFiPrime, most of the DeFi projects either completed or in development are built on the Ethereum blockchain. With more than 200 projects already on the network, it’s quite apparent that the network’s weaknesses have played a part in fraudulent activity and hacks.
Security of smart contract transactions
Specifically, in the Ethereum field, smart contracts are known to have plenty of security concerns. In turn, these concerns have affected DeFi projects, making it possible for people to exploit a few areas allowing them to steal millions of dollars. Additionally, DeFi projects are applying smart contracts onto projects worth billions of dollars, of which most aren’t audited beforehand.
According to Tom Lindeman, a veteran researcher and former director in the Ethereum Trust Alliance, there is no foolproof way to say that a smart contract is secure before the transaction is initiated. As the sector continues to be a beehive of activity, organizations and individuals are continuously approving swapping tokens, token contracts and adding liquidity to pools. This is why the Enterprise Ethereum Alliance has formed the EthTrust Security Levels Working Group whose role will be to create the protocols and standards for secure transactions on the Ethereum blockchain.
A registry for authentic and rated smart contracts
Lindeman says the group has been hard at work on the Eth Trust Project for a while now. Although the boom in DeFi has helped make this conversation more crucial, it’s also a big sign that the network is growing into something better. One way to address these vulnerabilities is by creating an authentic registry of reliable, authentic, and security minimums to deem a smart contact secure.
After the contracts are placed on the test and come out stellar on the other end, they can be placed on a registry of smart contracts that can be trusted not to have security issues. This registry will be in charge of fulfilling the conditions of the contracts so that each party gets what they want.
Interest in smart contracts
When it comes to matters of finance, security is one of the highest priority subjects because of the scale of loss the breach brings. That is why the smart contract is as popular as it is today. Companies such as PricewaterhouseCoopers have shown interest in having one such value system. Here, companies interested in the blockchain space can utilize these smart contracts to show that they can be trusted and show their expertise and experience in the field. As smart contracts get better, investors and users alike can better embrace the new technology. More so, it’s important that firms that deal with DeFi to be completely secure because of the amount of money at stake. As time goes, these smart contracts can be used for so much more, not just in the world of DeFi.