DeFi Security: Turning The Weakest Link Into The Strongest Attraction

ArXiv ID: 2312.00033 “View on arXiv”

Authors: Unknown

Abstract

The primary innovation we pioneer – focused on blockchain information security – is called the Safe-House. The Safe-House is badly needed since there are many ongoing hacks and security concerns in the DeFi space right now. The Safe-House is a piece of engineering sophistication that utilizes existing blockchain principles to bring about greater security when customer assets are moved around. The Safe-House logic is easily implemented as smart contracts on any decentralized system. The amount of funds at risk from both internal and external parties – and hence the maximum one time loss – is guaranteed to stay within the specified limits based on cryptographic fundamentals. To improve the safety of the Safe-House even further, we adapt the one time password (OPT) concept to operate using blockchain technology. Well suited to blockchain cryptographic nuances, our secondary advancement can be termed the one time next time password (OTNTP) mechanism. The OTNTP is designed to complement the Safe-House making it even more safe. We provide a detailed threat assessment model – discussing the risks faced by DeFi protocols and the specific risks that apply to blockchain fund management – and give technical arguments regarding how these threats can be overcome in a robust manner. We discuss how the Safe-House can participate with other external yield generation protocols in a secure way. We provide reasons for why the Safe-House increases safety without sacrificing the efficiency of operation. We start with a high level intuitive description of the landscape, the corresponding problems and our solutions. We then supplement this overview with detailed discussions including the corresponding mathematical formulations and pointers for technological implementation. This approach ensures that the article is accessible to a broad audience.

Keywords: Blockchain Security, Smart Contracts, DeFi Protocols, Cryptographic Fundamentals, One-Time Password (OTP), Crypto/DeFi Assets

Complexity vs Empirical Score

  • Math Complexity: 3.0/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Street Traders
  • Why: The paper centers on practical engineering and protocol design for DeFi security, with strong empirical evidence from deployed commercial systems on Ethereum, Binance, and Polygon, but the mathematics involved is relatively basic, focusing on authentication protocols and risk limits rather than advanced theoretical models.
  flowchart TD
    A["Research Goal:<br/>How to secure DeFi assets<br/>and reduce maximum loss?"] --> B["Methodology:<br/>Threat Assessment &<br/>Crypto Analysis"]
    B --> C["Key Innovation 1:<br/>Design Smart Contract<br/>Safe-House Logic"]
    B --> D["Key Innovation 2:<br/>Adapt OTP to Blockchain<br/>(One Time Next Time Password)"]
    C --> E["Computational Process:<br/>Enforce Limits via<br/>Cryptographic Guarantees"]
    D --> E
    E --> F["Secure Integration:<br/>Safe-House + OTNTP<br/>connected to Yield Protocols"]
    F --> G["Outcomes:<br/>Reduced Max Loss<br/>Maintained Operational Efficiency<br/>Robust Security"]