DeFi doesn’t functions like traditional financial systems that depends on centralized intermediaries like banks. It supports decentralized ecosystem and functions on blockchain technology in the field of cryptocurrencies. While needing of financial services, investors directly communicate with DeFi systems. However, this communication doesn’t happen over the phone, it occurs through smart contracts and blockchain technology.
DeFi has brought multiple innovations in the field of cryptocurrency that include borrowing, lending, trading, liquidity provisions, yield farming, and many more. DeFi allows users to lend or invest their assets to earn interest. Similarly they can borrow assets, trade various tokens, and access other financial activities directly from their wallets. On the other hand, traditional financial systems can not offer these services without intermediaries. The DeFi systems are growing rapidly with new protocols, technologies, and projects. Even having innovative potential, DeFi has experienced security issues. Recently, two DeFi protocols Exactly and Harbor experienced major hacking attacks. However, both protocols were attacked separately.
On-chain data reveals 4,323.6 Ether worth nearly $7.3 million at the time of writing, had been stolen from Exactly Protocol. The hackers then bridged 1,490 ETH using the Across Protocol and 2,832.92 ETH to the Ethereum network via Optimism Bridge.
These attacks proved that vulnerabilities were available within the protocols. It is a reminder for the entire DeFi ecosystem. Now they need to bring more improvements in their technology and security systems to protect the funds of users.
The Harbor Hacks: An Overview
Malicious actors exploited vulnerabilities that were present within the protocol’s code to gain illegitimate access and successfully transferred huge amount of ETH from the system protocol. The hackers attacked first the Harbor DeFi protocol and successfully managed to remove nearly $214,000 worth of assets from the system without proper authorization. In the second attack, that happened soon after the first attack, they again exploited another vulnerabilities and siphoned off around $1.4 million from the protocol.
These incidents show that despite continuous improvement in technology and security systems, the attackers are able to find more advanced ways to take advantage of vulnerabilities in cryptocurrency space. Due to these attacks, DeFi platform may lose users’ trust and reputation of their platform. DeFi should consider these attacks as a reminder and ensure safeguarding of user funds by improving security measures continuously.
Smart Contract Vulnerabilities
A vulnerability refers to a flaw or weakness that exits in the underlying code of the system. The attackers take the advantage of these flaws to enter in the system without permission and make harmful activities. These vulnerabilities were in the smart contracts of the Harbor protocol. Smart contracts are executed automatically as per agreements that are written in system’s code. It operates on blockchain. Since the smart contracts are automated and function based on the logical conditions set within the code, it doesn’t require intermediaries to interact with users. Smart contracts are a collection of code that runs on blockchain technology, so errors are possible. These errors lead to vulnerabilities that hackers exploit to gain unauthorized access to the system. In the reference of the Harbor DeFi protocol, the attackers exploited vulnerabilities that were available in the smart contracts’ code to gain illegitimate access to funds.
Implication for the DeFi Ecosystem
In recent attacks on Harbor DeFi protocol, three main challenges that are security, transparency, and user protection emerged for DeFi ecosystem. They need to address these critical aspects to secure users’ funds, hold their trust, and give a clean environment. DeFi platforms involved in various financial activities like lending, borrowing, trading, and many more. These financial transactions include significant amounts of cryptocurrency assets that belong to users or investors. Therefore the attackers target DeFi platforms. When the malicious actors target a DeFi platform and remove funds from there, users can suffer financial losses. These types of attack may discourage new investors from participating in the DeFi space. If users lose their trust and stop participating in DeFi financial activities, the growth and development of DeFi ecosystem will be disrupted and the progress and new innovation will get slowed down.
The Need for Audits and Security Measures
Before deploying DeFi protocols, a comprehensive security audits is required to systematically review and analyze the smart contracts’ code, its design, and architecture to detect security flaws, weaknesses, and potential vulnerabilities. Smart contracts are the backbone or foundation of most DeFi applications Therefore, these audits are very important to ensure that the protocols are more secured and free of coding errors. Otherwise the attackers may take advantage of these vulnerabilities to siphon off users’ funds. If the auditors detect vulnerabilities in the code, developers should immediately be informed about it so that they could address these security flaws before they are exploited by attackers for wrong purposes. Security assessments need to be continued to safeguard the system because the hackers will never stop they will try continuously to find a new way to target DeFi platforms.
Education and Due Diligence
The Harbor hacks gives reminders to users that they need to be cautious and alert while interacting DeFi platforms. They should research and investigate completely before involving in any types of financial activities on DeFi ecosystem. Many DeFi platforms may offer attractive returns on investments and new financial products. Don’t jump on the offers without analyzing the products’ features and the risk associated with it. Before participating in financial services of DeFi platforms, you need to conduct complete investigations about the platform’s features, integrity, and potential risks associated with its security systems.
Conclusion
The incident of the Harbor hacks acts as a reminder of potential security risks that include safeguarding users’ assets, their sensitive information, integrity of the platforms, and the continuity of the entire DeFi ecosystems. In order to safeguard the entire DeFi ecosystems, developers of DeFi protocol, users or investors who participate in financial activities, and regulators who control and regulate the entire crypto world must work together and collaborate with each other to make strong security measures that include implementing complete audits, rectifying coding errors, and improving advanced technology to secure the entire platforms from potential vulnerabilities and hacks. Regular audits are required to identify coding errors that are vulnerable to malicious attacks. It is also crucial to make users educate about the platforms’ features and the potential risks associated with it. Identifying potential vulnerabilities and implementing advanced technology for security measures may help DeFi systems progress and innovate new technology and financial products that will bring more new users to the platforms.