Curve Finance’s current near-death expertise (and its averted propagation) might appear to be a blur in Web3’s rear-view mirror, however it’s really one thing that retains taking place 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 growth 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 good contracts, many media shops and commentators known 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 one way or the other bypassed or damaged an current safety measure. However the assault on Curve was an exploit. Nothing that occurred that was out of the unusual when it comes to 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 purposes, is severely restricted in its skill to precise complexity past comparatively easy transaction logic.
This makes it arduous for anybody to design safety measures that may stop this or every other assaults. Extra worryingly, it additionally makes it arduous for anybody to correctly design instruments to stop 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 stop 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:
Dangerous 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’s only value $5 million.
(One other instance of this basic 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 verify statistical estimations primarily based 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 share of the collateral token’s circulating provide. This may’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 might be obtainable in digital machines just like the Ethereum Digital Machine. They’re additionally restricted when it comes to 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 features 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 mathematics module in Python, for instance. The everyday toolbox isn’t there and builders need to reinvent the wheel as a substitute.
Then now we have 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, comparable 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 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 stage, the unfold of the Curve Finance deadlock might’ve been prevented with on-chain threat administration. At a basic stage, this complete class of assaults may very well be prevented with extra expressivity and assets in Web3.
These are two points of blockchain scalability which have lengthy been neglected 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 obtainable 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. Possibly we might begin with on-chain threat administration.
