Smart contract audits are crucial, especially in bull runs.

Increased market activity often goes hand in hand with deploying more smart contracts. With all the excitement and FOMO going on, emotions play a significant role in decision-making. Rushed smart contract deployments in times of market euphoria can lead to overlooking potential risks. Deploying smart contracts fast without performing diligent smart contract audits increases the potential for vulnerabilities or bugs that may have fatal consequences for the project.

Let's dive into four significant hacks that highlight the importance of thorough smart contract audits:

The DAO Hack: a reentrancy attack that smart contract audits could prevent

Remember the DAO, a venture capital fund built on the Ethereum blockchain? In June 2016, a hacker exploited a vulnerability in the DAO's smart contract code. This incident led to a hard fork of the Ethereum blockchain, splitting it into Ethereum (ETH) and Ethereum Classic (ETC). 

The vulnerability had to do with how the DAO’s developers wrote the smart contract code to respond to requests to withdraw funds. The hacker managed to repeatedly "reenter" or, in other words, request funds from the DAO, resulting in the withdrawal of approximately $50 million worth of Ether. A reentrancy attack, one of the most devastating attacks in a Solidity smart contract, could have been spotted with a diligent smart contract audit.

Parity Multi-Sig Wallet Bug: when a single user became the "owner" of the smart contract

In July 2017, a critical vulnerability was discovered in Parity's multi-signature wallet smart contracts. The incident led to the freezing of over $150 million worth of Ether. The bug allowed a single user to become the owner of a contract and effectively lock everyone else out of their funds. Again, a detailed smart contract audit could have likely uncovered this vulnerability before deploying the contracts.

Bancor Hack: spotting a severe security flaw in smart contracts on time

Not that long ago, in the summer of 2020, a DeFi protocol Bancor identified a severe security flaw in its smart contracts that, fortunately, was spotted on time. Had it not, it could have resulted in potential theft of millions of dollars. 

To mitigate the risk, Bancor's security team quickly initiated a plan to hack its own system, which allowed it to drain funds from vulnerable contracts to protect user assets. Luckily, the Bancor team was quick to react. Just think for a moment of the consequences if Bancor didn't manage to prevent hackers from exploiting the vulnerability and stealing user funds. 

YAM Finance Incident: a bug in the rebase function of the smart contract

YAM Finance, a yield farming project, experienced a critical flaw in its smart contract code just days after its launch in August 2020. It crashed over 90%. As the project's developers explained it later: "The bug within the rebase supply feature of Yam crippled the governance system of the protocol." CertiK, one of the leading smart contract audit firms, explains the bug in the rebase function and how smart contract auditors could prevent it in the future in great detail. 

Why smart contract audits are vital for emerging Web3 projects

When obvious isn't that obvious: The Dao Hack, Parity Multi-Sig Wallet Bug, Bancor Hack, and the YAM Finance incident remind us of three obvious facts that project leads and developers can't overlook when deploying smart contracts:

• All transactions on the blockchain are irreversible 

• Minor coding flaws can result in the theft of enormous quantities of money

• Web3 project leads and developers can avoid potentially fatal flows in smart contracts with thorough smart contract audits

Need help auditing your smart contracts? Audita is here to help. Request an audit with us today and receive an executive summary of vulnerability details, and mitigation advice in a in-depth audit report.

Stay SAFU!
Audita's Team