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DeFi security risks still exist, urgently needing to return to the essence of Blockchain Decentralization.
Decentralized Finance security issues still need to be taken seriously
The security risks in the DeFi space still exist. Although experts have conducted extensive analyses of the risks in the Decentralized Finance ecosystem, developers seem to still not pay enough attention. In an environment where the market continues to thrive and the scale of locked assets keeps rising, people seem to have forgotten the crises lurking beneath the facade of prosperity.
Well-known Decentralized Finance protocol attacked
At the beginning of 2021, a former DeFi star project suffered a flash loan attack. According to analysis by security agencies, the attacker implemented the attack through the following steps:
The attack resulted in losses of up to tens of millions of dollars for the DeFi protocol.
The root of the problem lies in the fragile pricing mechanism
The core issue exposed by this attack is that certain Decentralized Finance protocols have adopted price mechanisms that are susceptible to manipulation. Influencing prices by controlling the shares in the liquidity pool is a typical method of price manipulation.
We can compare various DeFi protocols to different "countries", each with its own rules. Astute "merchants" look for loopholes between the rules to profit. This behavior is essentially difficult to blame, as the mechanisms of the protocols themselves expose weaknesses that can be exploited.
It is very important to return to the essence of blockchain
Currently, many DeFi developers are overly focused on speed and efficiency, neglecting the essence of blockchain. The Bitcoin network ensures security by having all nodes collectively verify transactions, sacrificing some efficiency but providing an excellent solution in terms of trustworthiness.
If the price mechanism relies solely on a few "trusted" nodes or simple liquidity shares, and cannot be effectively verified by all participants, then this price lacks a true consensus basis. This is contrary to the essence of blockchain decentralization and consensus verification.
Decentralization is the foundation of security
A truly secure pricing mechanism should be permissionless and verifiable by anyone. As the number of participants grows, the quality of the price will also improve accordingly. This on-chain price generated from a multi-party non-cooperative game is the security foundation that DeFi protocols should pursue.
Adhering to the decentralized essence of blockchain is key to the healthy development of the industry. Only by returning to its original intention can the DeFi ecosystem build a truly solid security barrier.