DeFi
DeFi Needs to Solve Its Security Issues. Here’s How That Could Happen – DL News
- Strengthening the security of the DeFi protocol would help prepare it for mass adoption.
- Hacken estimates that only 5% of projects use some form of monitoring to detect and respond to hacks in real time
By some measures, cryptocurrencies are a safer market today than in the heady days of the previous bull market.
Thefts due to hacks and exploits this year are approximately a third below losses compared to the same period in 2022, which remains a record year, according to blockchain intelligence firm TRM Labs.
Despite this progress, there is still a long way to go before many DeFi proponents’ dream of competing with traditional finance comes to fruition.
“We have a system that is built on confusion, with a lot of money inside,” said Ogle, a pseudonymous whitehat hacker and founder of the Glue blockchain. DL News“It’s a bad combination.”
The complexity of DeFi, coupled with developers’ tendency to solve problems by making things more convoluted, means it’s “not surprising” that thousands of users end up having their money stolen, Ogle said.
Protocols that hold billions of dollars in cryptocurrencies are lucrative targets for hackers. Users are often just a click away from having their cryptocurrencies drained by a malicious link without even realizing it.
Cryptocurrencies lost to hacks and exploits are down from their 2022 peak.
And when things go wrong, users are often left behind.
It doesn’t have to be this way, Ogle said.
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“The whole Internet is built on open source software and it’s all good,” Ogle noted. “It’s just been tested and iterated, and they haven’t changed things too much.”
Fill gaps
Strengthening the security of the DeFi protocol would help prepare it for mass adoption.
The biggest problems arise when projects neglect security priorities and fail to follow best practices, said Ivan Domaretskyi, product manager at Hacken Extractor, a blockchain attack detection platform. DL News.
According to him, there are two major gaps: the lack of audits and real-time monitoring.
According to Hacken researchOnly 4 of the 41 projects hacked in the second quarter were subject to relevant audits.
Additionally, Hacken estimates that only 5% of projects use some form of monitoring to detect and respond to hacks in real time.
If more projects implemented real-time monitoring, Domaretskyi said, they could prevent many incidents from occurring.
There are also new methods to improve security, in addition to existing solutions.
Many DeFi hacks involve the same exploit, just on different protocols, Ogle said.
Reentrancy, a type of vulnerability that allows an attacker to interact with a smart contract more times than should be possible, is still impacts DeFi protocolsalthough this problem was identified as early as 2016.
A DeFi consortium
These are the kinds of solutions that traditional finance players will adopt as standards when they move into crypto, Ogle said.
“There will probably be a consortium of banks that will accept that this is the way it is,” Ogle added.
Consortia are already beginning to emerge in the public sector.
In October, the UK’s financial regulator joined the Monetary Authority of Singapore’s DeFi regulatory consortium, called Guardian Project.
There will always be a segment of the population that won’t obey the rules, Ogle said, but most activities will converge around traditional protocols that have been battle-tested.
“I don’t see why blockchain would be any different from any other technology that has come out, and that’s generally how it works.”
Tim Craig is a DeFi correspondent at DL News. Got a tip? Email him at tim@dlnews.com.