Enhancing DeFi Security to Protect New and Existing Users
“Where is all this new money coming from?” This question is probably on quite a few people’s minds. The answer? New users. Yes, after two years of red candles, we finally made it out. With plenty of good news comes fresh liquidity.
If the last bull cycle taught us anything, it’s that if we want to market DeFi to the masses, we need to up our security game. With unprecedented growth comes heightened risks that demand a sophisticated approach to security.
If people want more control of their money, they should also strive for a deeper understanding of the measures in place to protect them and a knowledge of how and why they fail.
In short, understanding the nuances of security within DeFi is critical not just for individual prosperity but for the sustained development and maturation of the platform as a whole. Antoine recently chatted with David Schwed, COO of Halborn, to discuss where we are and where we need to go.
The Integral Role of Third Parties in Blockchain Security
Third-party entities play a pivotal role in fortifying DeFi platforms. Their objective and unbiased analysis provides much-needed assurance for investors and users in the inherently trustless environment of blockchain.
One crucial approach to security is the employment of bug bounty programs. These initiatives incentivize ethical hackers to find and report security issues within DeFi projects.
David had this to say on the topic: “If an organization has the budget for that, I always advocate for as many eyes on that piece of code as possible. That includes bug bounty programs because there’s also a different mindset. When you do a bug bounty program, you’re crowdsourcing, potentially thousands of people looking at the code.”
The exposure and resolution of white hat-detected vulnerabilities significantly reduce the threat of exploitation by black hat threats.
External audits of smart contract codes offer a second wave of scrutiny that can help identify and mitigate risks. Independent audits are a standard best practice, injecting additional accountability and transparency.
Custody in Web3: Holding Digital Assets Securely
“I think custody is something that should be explored. Custody is foundational to everything that we do in Web3. And if custody is not done correctly, the rest of everything you do after the fact is gone,” said David.
Due to the absence of traditional financial intermediaries, custody in DeFi is a multifaceted challenge. In this new paradigm, security is considerably more distributed and, therefore, more dependent on individual user actions.
A user’s private key is the metaphorical and literal key to their digital assets. Proper key management through secure storage solutions like hardware wallets, paper wallets, and cold storage is the first line of defense against unauthorized access.
Implementing multi-signature wallets, where a transaction requires multiple private keys to be executed, can significantly enhance security. This ensures that no single point of failure can compromise assets, a vital feature for DeFi platforms handling substantial sums.
Vulnerability Management in DeFi
As more DeFi protocols pop up, each trying to do something different from its competitors, there is an endless stream of potential vulnerabilities. Sometimes, it seems like there’s a scam around every corner. Proactive vulnerability management is fundamental to the safe operation of DeFi protocols.
David added, “New vulnerabilities are discovered after a while. And just because something is not new doesn’t mean there can’t be something that’s discovered. Say we become aware of it three months after an audit, we’ll work with our clients and go back and say a new vulnerability was discovered. I think it’s important to understand that things can be discovered in the future and not to rely on the past.”
Regular security assessments can help systematically identify and address any weak points in a system. These assessments must be comprehensive and focus not just on the technological aspects but also on the operational and strategic layers of the DeFi project.
Developing and adhering to a robust risk management framework involves assessing the impact of potential vulnerabilities and deploying strategies to mitigate these risks. Regular risk assessments will help to keep up with the rapidly evolving DeFi ecosystem.
The Unbreakable Bond Between DeFi and Security
The link between DeFi and security is our industry’s bedrock. It provides the foundation upon which trust and participation are built. It is the collective responsibility of every stakeholder — from the individual user to the platform developer — to prioritize and uphold security standards.
The price of liberty in DeFi is eternal vigilance. Every custody action, trading decision, and platform update carries security implications. We lay the groundwork for a safer and more prosperous DeFi future by remaining vigilant and proactive.
Ensuring the security of DeFi platforms is a multifaceted endeavor that requires continuous attention, from initial development through to daily usage. UNCX and Halborn are committed to ushering in a new age of safety in DeFi. Both companies are on a mission to mitigate risks while embracing change as they build a more robust DeFi ecosystem that can flourish sustainably.
The UNCX Network team
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