This week, finance.vote signalled a clear partnership with tidal.finance, a Polkadot based insurance marketplace platform that is designed to expand the insurance coverage of DeFi smart contracts and bring greater assurances to DeFi investors across the space.
This is very important work.
For DeFi, the security of smart contracts is paramount, and yet one of the most difficult things to provide solid assurances on. Typically, this is done by the smart contract auditing process, which is essentially a paid peer review system, whereby an individual or entity builds a series of tests to analyse a contract to look for bugs, vulnerabilities, known exploits and potential attack vectors from known composibility risks.
All of that is a significant challenge, especially discovering exploits that are not yet known, or those that arise from the complex interactions that arise from arbitrage activity among the DeFi “money legos”.
Flash loans in particular have introduced an entirely new risk dynamic to the space. They allow users to borrow large amounts of collateral, interact with a sequence of contracts through a series of chained transactions, arbitrage and then return the collateral all within a single block. This has been the primary vector for attacks in recent months and many millions of dollars have fallen into exploiters’ hands putting the future of some DeFi projects into serious doubt.
Frankly, you can’t remove this risk completely. We have no idea what DeFi innovation is going to come next. What is needed is continuous decentralised peer review.
Decentralised Peer Review
The peer review process has been used for hundreds of years in the sciences and other academic disciplines to build assurances on the fidelity of findings. It is far from perfect, but it has become the de facto standard for ensuring that work that makes it into the public arena is of sound stature.
The principle is that an anonymous set of “peers” independently review work and provide creators with an opportunity to improve their work following feedback. These peers are within the discipline and understand the work, ensuring that if the work is published, thus becoming canonical knowledge in that discipline, it is worthy of inclusion.
In the DeFi space the stakes are far higher, with some contracts holding billions of dollars worth of assets, and single audits are not enough. What we need is something more robust and more decentralised than even the academic peer review process. We need many eyes on these contracts and not just at deployment, but in an on-going fashion.
finance.vote x Tidal Finance
In collaboration with the Tidal Finance team we will be exploring how to build a more diversified set of stakeholders in the risk assessment of smart contracts using our voting technology.
Specially issued decentralised identity tokens will be issued to smart contract auditing entities and high quality engineers. Using a similar framework to our vote markets system, we will be able to quickly generate consensus on the perceived risk of certain smart contracts that is not only a standalone snapshot but an ongoing evaluation of perceived risk of those smart contracts.
For example, imagine a new kind of DeFi primitive is released that allows arbitrageurs to generate thousands of flash loans per block, peppering DeFi contracts with fractionalised collateral. Overnight, all the contracts in the DeFi space have a different risk profile and insurance pools need to quickly understand and price this in.
Tidal’s market place will allow people to change their positions on various cover contracts quickly and auditors will be able to quickly re-evaluate their consensus on the risk of contracts from across the space. The data arising from this consensus, could be used to inform the creation and pricing of insurance pools.
Largely, technical risk is not priced into the DeFi products effectively. In an innovative space driven by composability risk assessment exercises need to be continuous rather than a priori analysis. The development of centralised auditing practices, towards decentralised peer review systems will improve the ability of insurance protocols like tidal.finance to determine which contracts to cover and how technical risk should be priced in. This partnership between finance.vote and tidal.finance, will open an important research and development trajectory for governance and decentralised insurance provision.
Finance.vote is the consensus layer for DeFi. It is a governance platform designed to introduce quadratic voting technologies and mechanisms for price discovery to decentralised finance. The platform pushes prediction markets and DAOs into new territories, where users can earn tokens for accurate price predictions and participating in governance decisions. Finance.vote is DeFi 2.0.
Finance.vote public channels
Official Website: https://finance.vote
Announcements Channel: https://t.me/financevote
TIDAL is a multi-chain open market for programmable insurance, empowering users to create custom insurance pools for multiple assets. With pool statistics and ranking, it is the most efficient smart contract insurance market, launching on the Polkadot Ecosystem.
TIDAL pubic channels
☂️ Official Website: https://tidal.finance/
☂️️ Medium: https://medium.com/tidal-finance
☂️ Twitter: https://twitter.com/tidaldefi
☂️ Announcements Channel: https://t.me/tidalann
📗 Intro to Tidal Medium blog: https://medium.com/tidal-finance/introducing-tidal-open-marketplace-for-programmable-insurance-1a48b1d497eb