Introduction

Decentralized finance is an umbrella term encompassing various financial domains on the blockchain ledger. Built on the premises of cryptocurrencies, Defi is an analogous world to traditional banking and even wall-street to some extent. As a matter of fact, Defi is all set to mutate how we experience financial services in the present world. Although it is still in infancy, security overhauls are hovering all over Defi space, with almost $12bn worth of digital assets lost in 2021 alone. However, a DeFi audit plays an imperative role in managing the security concerns of the Defi protocols; a security audit comes with its own set of challenges. This blog will discuss five major challenges with Defi smart contract audits and how they can be resolved. First, Let's discuss defi smart contract audit.

What is Defi smart contract audit?

Before diving into the Defi security pool, it is vital to understand the immutable nature of the blockchain. It signifies that once anything is deployed on the blockchain, it cannot be changed, even if it requires rectification. So, once you deploy a DeFi smart contract on a blockchain ledger, it is out in public even for attackers to exploit its vulnerabilities. Defi audit scans the smart contract for its vulnerabilities using automated and manual testing techniques, along with deploying static and dynamic analysis tools. Usually, a third party or a Defi audit firm performs a Defi security audit to review the code from an outsider's viewpoint.

Following are some of the advantages of auditing a Defi smart contract.

Advantages of auditing Defi smart contracts

1. Scan for vulnerabilities like reentrancy, front-running, floating pragma, broken access control, integer overflow/underflow, and more.
2. Optimizes the code for consistency.
3. It acts as a security certificate for investors and other users putting their assets in your smart contracts.
4. Prevent exploitation of bugs at the hand of hackers.

The Defi audit plays a prominent role in certifying Defi safety; it is still not free from flaws. In the following section, we will discuss five significant challenges associated with the Defi smart contact audit.

5 Challenges of auditing Defi smart contracts

1. A smart contract audit is not a security guarantee

Auditing is not a new phenomenon; still, a number of projects that went through security audits faced cybersecurity threats - for instance, the recent Lifi hack of march 2022. Li finance protocol loses $600,000 worth of digital assets in a Defi hack, even after having multiple companies auditing them. It signifies that although an audit is necessary, it is not enough and needs extra effort to secure your Defi projects.

1. Vulnerable Frontends

Smart contracts work at the backend of a DeFi project, and hence auditing secures only a part of your smart project. If vulnerabilities exist with the front end, it may still be detrimental to the project, which developers need to consider.

1. Determining the area of security audit

Auditing requires you to share your project's documents with the auditors. Hence, deciding which parts to include within the audit contour is imperative. Over-scrutinization and sharing unnecessary information not only consume plenty of resources but also increase the time of the audit.

1. Finding reliable and experienced auditors

Research! Research! And Research! Always conduct thorough research about the company or individual you are trusting with your Defi security. When there are many options available, look for their team, look for opinions about them on Reddit, evaluate their portfolio, and obviously, experience in the auditing industry. It's best if you can get feedback from their client. People who have already worked with them are likely to provide reasonable feedback.

1. Documentation

Numerous protocols commit the serious error of omitting sufficient documentation. It will be challenging for auditors to determine with accuracy whether the code's functionality corresponds with what the author intended to do if documentation is deficient or essential information is absent. Hence, sharing comprehensive documents with auditors is necessary to review the smart contract thoroughly.

Wrapping Up

Commencing its journey in 2017, DeFi is not far from becoming a household name. It can potentially revolutionize the financial ecosystem we experience today and probably in a more secure form. Increasing demand for auditing solutions has accompanied the recent surge in decentralized finance popularity, which is the critical point of beginning for the Defi security. Hence, the possible issues highlighted above must be taken into consideration to ensure a holistic security solution for your DeFi.