Curve Finance’s current near-death expertise (and its averted propagation) could look like a blur in Web3’s rear-view mirror, however it’s really 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 may’ve been prevented if on-chain threat administration existed.
All of this factors to a broader downside in Web3. That’s the downside of restricted expressivity and sources that exist in its growth environments and the way it impacts safety total.
Hack or exploit?
When the Curve Finance attacker was in a position to retrieve US$61.7 million in belongings 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 someway bypassed or damaged an current safety measure. However the assault on Curve was an exploit. Nothing that occurred that was out of the unusual 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 in charge for this? Nobody. Curve’s Vyper code, like many of the (Solidity) code that’s utilized in Web3 functions, is severely restricted in its capability to precise complexity past comparatively easy transaction logic.
This makes it exhausting for anybody to design safety measures that will 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
However it doesn’t imply there was nothing Curve may 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 unstable $RISKY token by way of 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 value of $RISKY and confirms that Bob is “good” for the cash.
- Bob runs.
- When Naive Finance liquidates $RISKY it is just value $5 million.
(One other instance of this common sample could be discovered within the Euler hack from March.)
Historically, this downside 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 may test statistical estimations primarily based on the token’s historic worth earlier than approving the mortgage. The protocol would’ve seen by means 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 selection may’ve been prevented if Aave and Frax had an automatic, on-chain restrict on mortgage approvals once they cross a share of the collateral token’s circulating provide. This may’ve been a safer and fewer stress-inducing scenario for everyone.
Restricted expressivity and sources
The actual downside right here is that present Web3 ecosystems can’t help one thing like this on-chain threat evaluation answer. They’re restricted by the form of libraries and frameworks which might be out there in digital machines just like the Ethereum Digital Machine. They’re additionally restricted by way of the sources at their disposal.
With a purpose to develop one thing like this threat evaluation and administration answer, a decentralized app would want to rely on coding libraries which have features for not less than fundamental 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 mathematics module in Python, for instance. The standard toolbox isn’t there and builders need to reinvent the wheel as an alternative.
Then now we have one other downside. Even when they’d these libraries, they might be too costly to code. Actually costly. The Ethereum Digital Machine is designed in order that there’s a worth 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 that may must scale computationally with out incurring unreasonable prices. One may simply see how a threat administration answer would price extra to run than what it’s in a position to save in funds.
Specializing in the suitable issues
At a localized degree, the unfold of the Curve Finance deadlock may’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 sources in Web3.
These are two facets of blockchain scalability which have lengthy been missed as a result of they transcend affording extra shared block area for dApps. They really contain the creation of growth environments in Web3 that emulate these of Web2. They’re about computational scalability and programmability, not simply scaling the quantity of information that’s out there on-chain.
Maybe if protocol builders at Curve, Aave or Frax had the flexibility to rely on a greater toolbox and extra sources, these and future exploits may very well be averted altogether. Perhaps we may begin with on-chain threat administration.
