Curve Finance’s current near-death expertise (and its averted propagation) might seem to be a blur in Web3’s rear-view mirror, but it surely’s truly one thing that retains occurring within the business. It’s not the primary time {that a} decentralized finance protocol — or any decentralized app for that matter — has been affected by an assault that’s completely authorized inside its personal code. Extra so, the disaster might’ve been prevented if on-chain threat administration existed.
All of this factors to a broader drawback in Web3. That’s the drawback of restricted expressivity and assets that exist in its improvement environments and the way it impacts safety general.
Hack or exploit?
When the Curve Finance attacker was capable of retrieve US$61.7 million in property from Curve Finance’s sensible contracts, many media shops and commentators referred to as the occasion a “hack.” However this was not a hack — it was an exploit. The distinction right here is essential.
On this context, a hack would’ve taken place if the attacker had in some way bypassed or damaged an present safety measure. However the assault on Curve was an exploit. Nothing that occurred that was out of the bizarre by way of what the protocol’s Vyper code allowed for. The looter merely took benefit of how the protocol’s design labored.
Who’s guilty for this? Nobody. Curve’s Vyper code, like a lot of the (Solidity) code that’s utilized in Web3 functions, is severely restricted in its means to specific complexity past comparatively easy transaction logic.
This makes it exhausting for anybody to design safety measures that might forestall this or every other assaults. Extra worryingly, it additionally makes it exhausting for anybody to correctly design instruments to forestall their unfold throughout DeFi’s huge and composable liquidity panorama.
On-chain threat evaluation
Nevertheless it doesn’t imply there was nothing Curve might do to forestall this assault and its unfold throughout DeFi. A easy instance of an answer could be on-chain threat evaluation.
The generalized model of a problematic sample that may very well be solved could be summarized in a hypothetical scenario like this one:
Unhealthy actor Bob buys $5 million value of the extremely risky $RISKY token through a flashloan.The worth of $RISKY token is successfully pumped by Bob after the acquisition. Bob takes out a $100 million mortgage on Naive Finance backed by $RISKY.Naive Finance checks the worth of $RISKY and confirms that Bob is “good” for the cash.Bob runs.When Naive Finance liquidates $RISKY it’s only value $5 million.
(One other instance of this common sample could be discovered within the Euler hack from March.)
Historically, this drawback is solved by threat evaluation options that decide how good of a assure an asset could be. In the event that they existed on-chain, Naive Finance might examine statistical estimations based mostly on the token’s historic value earlier than approving the mortgage. The protocol would’ve seen by way of the pump and denied Bob the $100 million.
DeFi is missing this type of on-chain threat evaluation and administration.
Going again to Curve Finance, a diffusion might’ve been prevented if Aave and Frax had an automatic, on-chain restrict on mortgage approvals once they go a proportion of the collateral token’s circulating provide. This might’ve been a safer and fewer stress-inducing scenario for everyone.
Restricted expressivity and assets
The actual drawback right here is that present Web3 ecosystems can’t assist one thing like this on-chain threat evaluation resolution. They’re restricted by the form of libraries and frameworks which are out there in digital machines just like the Ethereum Digital Machine. They’re additionally restricted by way of the assets at their disposal.
So as to develop one thing like this threat evaluation and administration resolution, a decentralized app would want to rely on coding libraries which have capabilities for not less than primary mathematical ideas like logarithms and others.
This isn’t the case in Web3 as a result of dApps don’t have entry to NumPy, the maths module in Python, for instance. The standard toolbox isn’t there and builders need to reinvent the wheel as a substitute.
Then we have now one other drawback. Even when that they had these libraries, they’d be too costly to code. Actually costly. The Ethereum Digital Machine is designed in order that there’s a value for each computation.
Whereas there are legitimate causes for this, similar to stopping infinite loops and such, it additionally creates a useful resource limitation for dApps which may have to scale computationally with out incurring unreasonable prices. One might simply see how a threat administration resolution would price extra to run than what it’s capable of save in funds.
Specializing in the suitable issues
At a localized degree, the unfold of the Curve Finance deadlock might’ve been prevented with on-chain threat administration. At a common degree, this entire class of assaults may very well be prevented with extra expressivity and assets in Web3.
These are two facets of blockchain scalability which have lengthy been missed as a result of they transcend affording extra shared block house for dApps. They really contain the creation of improvement environments in Web3 that emulate these of Web2. They’re about computational scalability and programmability, not simply scaling the quantity of knowledge that’s out there on-chain.
Maybe if protocol builders at Curve, Aave or Frax had the power to rely on a greater toolbox and extra assets, these and future exploits may very well be prevented altogether. Perhaps we might begin with on-chain threat administration.
