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Security State Of DeFi And Risk Mitigation Ideas

“DeFi” sounds like no alien term now. We are in a time where decentralized finance has engraved its significance as a blockchain-based alternative for financial systems and scaling its adoption rate at an incredible pace.
While the USD 1B locked in DeFi implies the spellbound validation of the new-formed technology by the users, there have been minor and major security break-outs quantifying whooping losses.
It’s shocking that 97% of the cryptos lost in the first quarter were from DeFi protocols. And that says a lot about how far the DeFi has to grow from a security perspective.
Let’s touch upon the recurring hacks practised in DeFi and how to smartly tackle the security of DeFi in this article.

Some Common Brooding Grounds For Hackers
DeFi At The Danger Of Price Manipulation
The information passed from the external source to the smart contracts is effective during execution. This offers a lot of scope for performing activities however one wishes.
Flash loans are one such possibility where hackers confide in to make profits. Flash loans are borrowed from DeFi platforms without collateral but are obliged to return the funds within the same transaction. Please do so to avoid the transaction being cancelled or reverted.
Hackers utilize such loans to manipulate the prices by selling the tokens in bulk and lowering the costs in the trading exchange. With the price data fed into the smart contract from the external sources, which the hacker has manipulated, they manage to make huge gains while repaying the loan.
Dwell On Third-Party Protocols And Mishaps In Code’s Logic
The automatic tuning and simulation of the smart contract logic inevitably rely on advanced coding and third-party services for real-time data gathering.
Here again, diversified coding for exceptional performance may have severe bugs, which, if hackers spot, would be a jackpot for them to loot away the riches from the DeFi platform. For example, mathematical logic errors, inappropriate use of functions, etc., opens the gateway for hacks.
External services like Oracles supply timely data relevant to executing the function by smart contracts. Hackers can easily modify these data, which are externally fed, by understanding the nuances of it. With this, they can make the logic crash and win millions.
Rug Pulls To Phishing Scams
It is very common in the crypto sphere where the hype for the token spikes in the beginning. This makes the investors believe that the tokens hold a solid value and dive into making a bulk purchase of them.
Mostly– not always- these over-hyped tokens are not an ideal option for investing as they are nothing but valueless tokens circulated to be rug-pulled later. Rug-pull scams are the new trend in DeFi that is performed by exploiting the user’s unfamiliarity with the immature space.
Phishing scams are always persistent, wherein users’ lack of knowledge and attention to detail makes it easier for hackers to grab hold of sensitive information and mess up the holdings.
Front-End Attacks and Social Account Hijacks
Frontend Attacks on DeFi websites and social account takeovers have recently increased. Hackers are targeting the domain names or websites of projects to redirect users to attacker-controlled websites to gain financial profits.
Recently, hackers compromised a Curve website or domain name to redirect unwitting users or their transactions to a malicious destination. Hackers made around $570,000 in ETH from the attack.

Hackers also compromise projects' social accounts, especially Discord and Twitter accounts. The attack starts with the attacker compromising the Protocols discord servers. The attacker commonly uses phishing, social engineering, bots, etc., to compromise Discord servers. After compromising the servers, scammers succeed when they can trick users into connecting wallets to their malicious websites.
Fake news and Influencer Pump and Dump
DeFi has attracted many scammers to scam users by circulating fake news for profit. Attackers create fake news about a project or token, and then once it gains popularity, they dump tokens and make profits.
DeFi projects pay a huge amount to influencers or celebrities for endorsements, helping to increase their price due to a surge in demand. Once investors start buying tokens, the price will go up. When the price reaches a certain point, the projects sell all of their shares. It causes a huge price drop, leaving all investors with nothing.
Getting Straight Into Security Best Practices
The DeFi space is less mature than its numbers appear to be. Yet, security loopholes prevail in any technology field, and the intensity of the effect may differ.

However, the security gaps can be bridged through the enforcement of critical measures.Errors are part of the blockchain experience, but it is tremendously dangerous if these events go unnoticed, as it would disrupt the project altogether. To eliminate the risk of facing such an unimaginable scenario, security audits spot the threats coming beforehand, saving smart contracts. Smart contract audits focus on code efficiency before deployment and verify that all interactions are safe. It ensures meaningful security that is uncompromisable. Projects can host their bug bounty program or integrate with Bug Bounty Platforms like Immunefi or Hackerone. It adds an extra layer of security for the projects. Even if everything seems to be fine and the contract is running smoothly, it is very much required that it is protected. Decentralized insurance protects user funds locked in DeFi protocols, and they can be assured of the security of the capital.51% of projects hacked are unaudited. Therefore, paying attention to security as a part of the development can significantly bring down DeFi’s share of fund loss and strengthen web3 security.

The Importance of Auditing Smart Contracts
What is a smart contract audit?
Smart contracts are conditions programmed and encrypted in a blockchain to execute and run transactions automatically. They will refuse transactions upon any breaches of the conditions.
Read more: How do smart contracts work?
Yet, smart contracts are immutable once deployed to a blockchain network. They can run improperly and be exposed to attacks, though, if the developers make mistakes in coding or fail to cover security improvements.
Auditing is critical, then. During the process, experienced auditors use a methodical inspection to uncover vulnerabilities and suggest solutions to improve the operation and security of the blockchain, following a checklist.
The Smart Contract Audit Checklist
A step-by-step smart contract audit checklist
How to Apply Smart Contract Audit Checklist?
What does your business do next?
Having a smart contract audit checklist is critical and good to start. However, following the checklist is not an easy task.
We wonder whether you have an in-house development team. If not, your business needs to invest significantly in a team of experienced developers, testers, and auditors collaborating well. It also takes extra cost and time to train the team on the technology, implement frequent auditing, fix bugs, and make improvements.
Rather than that, we would suggest hiring an outsourced auditing firm that knows the smart contract audit checklist clearly and has experience in different projects.
You can directly hire experts from CyStack. The company is the leading company for security products and solutions to combat cybersecurity risks. Since it is based in Vietnam, you can expect an affordable cost than teams in other countries. The auditing quality is exceptionally good, though.
Wrapping Up

Never put your DeFi security down!
Besides the golden rules above, you should remember that there is hardly a comprehensive list to cover all potential vulnerabilities. The more blockchain and DeFi grow, the more sophisticated attempts hackers create to exploit the systems and steal your money.
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