Decentralized finance continues to make its impact on the crypto market, and with over $13 billion of total value of assets locked, DeFi projects are clearly resonating with eager crypto investors. Yet while the DeFi space has been progressing over the last year, a number of illegitimate projects have come to fruition, reminding some of the 2017 ICO boom and its subsequent bust.
For example, Harvest Finance, a major decentralized protocol, was recently hacked. The attacker made away with $24 million from Harvest Finance pools. Most recently, Value DeFi, the decentralized finance protocol, fell victim to a $6-million flash loan exploit. And of course, one of the biggest events of the year for DeFi involved SushiSwap, where the creator sold $13 million of dev funds, causing a market crash.
It’s important to point out that the majority of DeFi projects are built on the Ethereum blockchain. According to the website DeFiPrime, there are currently over 200 DeFi projects on the Ethereum network. Yet while Ethereum appears to be the most suitable platform for DeFi projects, the network’s vulnerabilities have played a large role in hacks and fraudulent activities.Smart contract transactions on Ethereum require security
Specifically speaking, the smart contracts that power Ethereum are known for being fraught with security issues, which, in turn, have greatly impacted DeFi projects. In addition, smart contracts being applied to DeFi projects worth billions of dollars are often not audited beforehand.
Tom Lindeman, a previous veteran researcher at Microsoft and the former managing director of the Ethereum Trust Alliance — a group of blockchain companies working on a security system for smart contracts — told Cointelegraph that there is currently no good ways to identify whether a smart contract is secure before initiating a transaction:“The DeFi space is worth billions of dollars now, but so many of those smart contracts being used a...