The 3 words to remember for DeFi during this year 2020: explosion (of the sector), explosion (of the bubble), explosion (of hacks). Should we consult an oracle to see what 2021 has in store for DeFi protocols? The oracles used by them should already be reliable.
Oracle, tell me: which pairs will be hacked?
DeFi protocol hacks have unfortunately become mainstream and among its latest victims are big name projects like Harvest Finance, Akropolis, Value DeFi, Origin and Compound.
Hacks usually happen through manipulation of the benchmark price, like that of the pair ETH / DAI from data source – Curve, Coinbase Pro or Kyber.
As DeFi continues to grow, so does the likelihood of such hacks.
The sector is becoming more complex with a proliferation of assets accepted as collateral.
This degree of complexity is also linked to an increasing generalization of indices and options parameterized at their fair value. Their success largely depends on the accuracy and reliability of the data.
Less liquid assets are more likely to be subject to manipulation, although pairs likeETH / DAI are not immune.
A contingent recipe book
There are some methods that reduce the risk of hacking. The most effective solution would be to use multiple oracles that are difficult or expensive to handle.
This solution is however limited by the fact that the existing oracles only support the most important cryptocurrencies on the market.
Setting price limits and trading ranges could also mitigate the risks of manipulation.
Monitoring tools could be deployed. Hacks are often done on one side of the market; large and sudden swings between bid and ask prices should attract attention.
It is useful to monitor the volatility index to identify abnormal variations.
Each DeFi project has unique characteristics. There is no one-size-fits-all solution to protecting yourself from hacks. Each measure must take into account the needs and objectives of a project.
No protocol is tamper-proof, but hackers seem to enter easily through the front door to hack DeFi protocols. The ecosystem is continually developing. We would like to see more cybersecurity protocols than projects aimed solely at making money through speculation in 2021. Filling the coffers is good, protecting them more effectively is better!
Litecoin, welcome in the Silver Age