Be alert, you may be playing fake DeFi

Editor's Note: This article comes fromBabbitt Information (ID: bitcoin8btc)Editor's Note: This article comes from

Babbitt Information (ID: bitcoin8btc)

Babbitt Information (ID: bitcoin8btc)

, Author: Hasu, Translator: Free and Easy, Released with authorization.

Written in front:

The DeFi field is currently flooded with various new protocols. For example, the recently popular YFI (yearn.finance) is one of them, but in essence, it is not a real DeFi protocol. According to the analysis of cryptocurrency researcher Hasu, similar A governance-heavy agreement like YFI has more or less custody issues, which will involve the security of user funds, so he suggested that participants regard YFI (yearn.finance) as a managed investment fund.

1. Original Author: Hasu

2. How does DeFi strike a balance between governance and deposit safety?

3. Between July 25 and August 6, yearn.finance developer Andre Cronje controlled $40 million in client funds;

On August 6th, while discussing an early draft of this article with me, Andre Cronje handed over the relevant governance rights to 9 community stakeholders, and controlled it through a 6-of-9 multi-signature mechanism;

Most users do not realize that all governance-heavy protocols, such as yearn.finance, Compound, or Aave, have more or less problems with custody funds;

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What is yearn.finance?

1. Yearn.finance is officially described as a revenue aggregation protocol, but I like to think of it as a fund where anyone can invest, and then an investment manager (or group of managers) directs this capital into DeFi Among the highest yielding opportunities in the field.

2. Since the launch of the governance token YFI in mid-July, yearn.finance has seen a surge in popularity, and while its token has been praised for its fair launch, there is a widespread misconception in the market that many people will think that funds are held by YFI tokens or at least controlled by multi-signature wallets representing their interests.

3. YFI token holders can vote on new proposals, these votes are informal, and when a proposal is approved, yearn.finance developer Andre Cronje goes to implement it. In contrast, Compound first implements the proposal and then activates it through formal voting.

Since July 21, 9 YFI community stakeholders have controlled the minting of additional YFI tokens through 6-of-9 multi-signature;

There is one controller who is responsible for all investment decisions, so he effectively controls client funds;

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controller

In order to understand how funds are kept, we need to understand vaults and strategies. A vault is basically a box where investors’ funds are stored, while a strategy is a smart contract that executes an investment strategy, such as lending coins to the money market with the highest annualized return. Anyone can deploy them, but to distribute people's money, the vault must be connected to a specific strategy.

The connection between the treasury and the strategy is realized by a central smart contract called the Controller. As of August 6th, the governance address of this controller is Andre Cronje's address:

We will briefly describe the steps to change a vault strategy.

First, call the setStrategy function:

In the next step, you call earn in the vault, which calls the controller's earn function:

you can athere…thereby transferring funds to the new strategy.

here

Check out the controller yourself.

In short, a controller can set a policy per vault, or change the policy of an existing vault.

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This functionality of the controller allows for a very simple, yet very powerful attack. At any time, it can decide to link the vault with a strategy that drains all client funds. Tactics can be as simple as transferring these funds to an account controlled by the opponent, with no warning or reaction time for the user.

As with the regular admin key attack vector, the main risk is not necessarily that Andre Cronje himself becomes malicious, but that the admin key is stolen by a third party.

In the August 6th snapshot, $165M was locked in yearn.finance, most of which were locked in YFI-related curve pools so they were not vulnerable to governance attacks, leaving $40M in funds Locked in a vault, the money is exposed to the controllers.

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Reactions from Andre Cronje himself

1. On August 6, I discussed an earlier draft of this article with Andre Cronje to confirm that my analysis was correct. During the discussion, he decided to call the controller's setGovernance function.

2. By doing this, he handed over control of the vault funds to a community-controlled multisig wallet, and excluded himself as a risk factor.

3. But really, I don't intend for Andre Cronje to relinquish control of the funds. There are good reasons why the protocol is set up in this way, waiting for 6 of the 9 community holders in different time zones adds a lot of overhead and delay to the operation of the platform, therefore, this results in:

Prototyping new vaults and strategies will obviously become more difficult;

In the rapidly changing market environment of DeFi, this will greatly damage the yield rate;

Instead, I just wanted to make investors more aware of the trust assumptions that come with using a protocol like yearn.finance.

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All governance-heavy protocols have more or less custody issues

In the current hyped DeFi movement, it is easy to overlook the problem I describe here: governance can theoretically drain users' funds, and this problem exists in many other DeFi protocols.