Ethical Hacking Techniques for Decentralized Finance (DeFi) Platforms

This paper (a section of the ebook) focuses on ethical hacking within the Decentralized Finance (DeFi) ecosystem, highlighting the nuanced security challenges these platforms face. As the DeFi ecosystem continues to grow and impact the finance sector, offering innovative lending, borrowing, and trading services through blockchain technology, it has become a prime target for malicious actors. This study not only introduces readers and gives security insights to the foundational operations of DeFi platforms, such as collateralized loans or the broader idea of how decentralized exchanges operate through smart contracts, but also indicates the critical need for proactive security measures. Through the incorporation of practical lab walkthroughs, this paper aims to give insightful information to developers, junior auditors, enthusiasts, and DeFi users on the security challenges faced in DeFi, and on adopting an attacker mindset when searching for vulnerabilities.

Understanding DeFi Platforms

In order to understand why smart contract code audits are necessary to the DeFi ecosystem, it’s crucial to investigate a few different DeFi models and how they work without the need of a centralized party to control them. This section explores two distinct DeFi applications. One is a decentralized lending platform and the other is a decentralized exchange (DEX), focusing on their operational mechanisms and unique features.

Decentralized Lending Platforms

Decentralized lending platforms work completely through smart contracts and they allow users to borrow and lend assets without going through traditional financial institutions. These....