DeFi Protocols Need to Address a Security Problem

The decentralized finance (DeFi) space isn’t going anywhere. It has shown that it is here to stay, and the data definitely suggests it. The total volume of assets locked in DeFi protocols is over twice what it was this time last year.

At the same time, there are more developments coming into DeFi. We at ScaryChain Capital are seeing to invest in projects and protocols, and DeFi is as vibrant as it has ever been.

Security is the Biggest Challenge

While DeFi is truly exciting, we’ve also noticed a need for protocols to grow their security infrastructure.

There are several vulnerabilities that protocols need to deal with. They include:

When DeFi users invest tokens in a pool, they get a stake that allows them to withdraw funds in the future. Ost liquidity pools tend to calculate the value of tokens they have based on the current pool composition — as opposed to using an external oracle.

Attackers can capitalize on this in flash loans, where they unbalance a pool. The unbalanced pool causes token value calculations to be incorrect, allowing the hackers to drain funds from the pool.

This type of attack has been quite prominent recently. Examples of protocol to suffer from this include BurgerSwap and Belt Finance.

Front-running attacks

When transactions are made on blockchains, they don’t immediately get added. These transactions are broadcast to the blockchain once they’re created, but they’re first stored in mem pools until they get added to the blockchains as part of a block.

The time between a transaction’s creation and its inclusion in a blockchain allows hackers to deploy front-running attacks.

The hacker will immediately look for transactions they can exploit. Once they find one, they create a copy of the transaction and add higher fees. Since miners tend to prioritize transactions with higher fees, the attacker’s transaction goes first, and they earn a profit.

Most attackers profit based on a foreknowledge of DeFi users’ transactions. Some examples of these include the hacks on Punk Protocol and DODO DEX.

51 percent attacks

To blockchain enthusiasts, 51 percent of attacks are no novelty. Most blockchain platforms are built to allow voting by nodes. Whenever an update or a development is in the works, votes are taken on the direction for the blockchain to go.

In a 51 percent attack, a hacker manages to get 51 percent of a blockchain’s computational power. This allows them to take a majority vote and control the blockchain essentially.

As blockchains grow, 51 percent of attacks have become more difficult to implement. However, some smaller blockchains have been subject to these attacks recently. There was an attack on Bitcoin Satoshi Version (BSV) last year, and smart contract platforms running DeFi code will need to be more careful with these threats.

Then, there are issues with smart contracts themselves. As we know, smart contracts are written as lines of code. When they are built and employed, they facilitate the operation of a DeFi protocol.

However, as with every code is written, there is always the possibility of a loophole or vulnerability. Most DeFi protocols go through multiple rounds of smart contract audits before they launch, but some loopholes still manage to go through.

ScaryChain Capital and $SCC: Leave Your Funds in a Secure System

While the security issue for DeFi is prominent, we at ScaryChain Capital remain committed to ensuring that our investors stay safe and secure.

Investors can purchase $SCC today and rest assured that they are investing in a protocol that is safe on all fronts. Our protocol has been audited, and so has $SCC. We understand the need to give investors top value for their money, and we will stay committed to this.

Today, $SCC is available on multiple exchanges and across different blockchains. You can purchase the token however you’d like and let us handle the task of investing your money properly!

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Audited and Kyc’d by Assure Defi