Smart contracts are pieces of code that bind two or more parties together. These contracts execute automatically after meeting certain predefined conditions. Smart contracts play a significant role in the Decentralized Finance (DeFi) ecosystem. But, they are also vulnerable parts of the DeFi ecosystem.
We often read about the hacks and unprecedented loss of funds in the news headlines. The primary impact is due to the unaudited smart contracts. But before we start discussing DeFi smart contract audit, let us revise our basics of smart contracts, how they work, and where they are used.
What is a smart contract?
Smart contracts are pieces of code that execute automatically after meeting pre-defined conditions. In simpler terms, these automate the execution of agreements to ensure all parties can ascertain the outcome without involving any intermediaries or time delays. Technically, a smart contract makes the transactions traceable, transparent, and irreversible.
For example, consider a smart contract that binds two parties to purchase a new car. After meeting the conditions, the registration will be automatically transferred to the owner without any delay or other expenses. Smart Contacts find their use in every industry, including finance, healthcare, supply chain, insurance, legal, and even government voting systems.
What is a smart contract audit?
A smart contract audit is a process to test errors, bugs, and vulnerabilities from the source code of the smart contract. A company dealing in smart contract auditing identifies and prevents the security vulnerabilities that hackers can exploit. Although hackers would have a callous time hacking a blockchain, smart contracts are not as difficult.
This is why the newer platforms have experienced hacks draining millions of dollars within minutes. Hence, it has also brought awareness among DeFi users to only interact with the platform whose smart contracts have been audited.
Who should undergo a smart contract audit?
While it might look like a tricky question, we will let you decide by taking the following example. Take the example of Ronin, where hackers pulled out $615.5 million on March 29, 2022. It became the most significant DeFi vulnerability on record, where the hackers stole 25.5 million USDC and 173,600 ETH from Ronin Bridge in just two transactions.
In 2022 alone, Poly Network, Wormhole, Beanstalk, and Vulcan Forged were also victims of hacks where hackers drained hundreds of millions from the platforms. These incidents teach a lesson to the DeFi users to interact only with audited smart contracts. Hence, doing a third-party smart contract audit is essential if yo