DeFi is no more a buzzword that became popular in 2022. Just the way web 3.0 is the new Internet, DeFi is on its way to being the new financial system. But DeFi has its own set of risks and the most common one is the smart contract risk. In the first quarter of 2022, the decentralized finance apps have already been exploited for over $1.4 billion which could have been easily avoided with a smart contract audit
A smart contract audit is a process that tests the smart contract source code for all kinds of vulnerabilities and attacks. The smart contract audit company works on identifying and preventing the security vulnerabilities that can be exploited by hackers. This considers business logic as well as the security aspects.
Blockchains are inherently resistant to hacks but smart contracts are not. Due to the scale of the hacks, DeFi users are becoming more careful about interacting with audited smart contracts only.
Take the example of the latest Uniswap phishing attack. The hackers nabbed Ethereum worth $8 million via a malicious smart contract. Such incidents are making DeFi users more aware to interact with audited smart contracts only. This means whether you have a DeFi app, you run an ICO or STO, own a blockchain game or dApp solution that uses a smart contract, it is very important for you to do a third-party smart contract audit.
A smart contract audit company ensures that the audit goes beyond the scope of identifying the code vulnerabilities. While most of the audit work involves the identification of security vulnerabilities, other tests are conducted to ensure the smart contract code is not susceptible to attacks like flash loan attacks or more. Let us first look at some common code vulnerabilities:
Smart contracts have a feature known as the fallback function. If this function is called by mistake, it triggers the indirect execution. There are several ways in which a fallback function is called. These include calling a function of another contract using ABI, depositing to another contract that could generate a fallback or a coder making a mistake when he declares the interface of the called contract.
A smart contract generally makes a call to another external contract. However, if this happens before any effects are resolved, the external contract might get called recursively and can then interact with the calling smart contract in ways that it should not.
This is a very common coding error. Whenever an arithmetic operation occurs, the operand stores the outcome of the operation. If the decimal places of the result exceed the decimal places defined in the operand, this leads to an integer overflow error which can lead to incorrect execution of the code.
A badly structured smart contract code can be used by hackers to leak the information of purchases or sales of any tokens. This information can then be leaked into the market to manipulate the trades.
Apart from identifying coding issues, the smart contract audit also includes efforts to increase the overall efficiency of the smart contract. That is why the smart contract audit reports also include audits on topics like:
Any smart contract code execution attracts a certain amount of gas fees. Thus, the smart contract audits also provide reports that can help developers optimize the performance of their smart contacts by identifying inefficient steps or points of failure that could attract higher gas fees.
A smart contract audit goes beyond the code and looks at the platforms or APIs that use that smart contract. Sometimes, the smart contract may be full-proof but it might be susceptible to attack due to the API or platform with which it interacts.
A smart contract audit company applies a well-defined approach to smart contract audits. It includes:
At this stage, the auditors identify the project specification, which means what is the intended purpose of the smart contract and the overall architecture. This is a crucial step as it helps the audit team understand the goal of the smart contract and identify the vulnerabilities.
The analysis tools and the testing methodology vary from team to team and smart contract to smart contract. Generally, a smart contract undergoes both manual and automated tests.
The first draft of the report is created and shared with the smart contract development team by the smart contract audit company. The coding team fixes the bugs and vulnerabilities and sends the contract back.
Once the code changes are audited, a final report is created that lists the previously identified vulnerabilities and fixes.
With the scale of DeFi hacks we have been witnessing lately, it has become crucial to get the smart contracts audited.
As a leading blockchain development company, Antier has real-world experience developing, deploying, and auditing hundreds of smart contracts. If you need any kind of help with smart contract audits, connect with us now!