DeFi
Bitcoin DeFi Security Issues Still Lurking, Says Fireblocks Head
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A decentralized Bitcoin (BTC) ecosystem has seen rapid development in 2024, with its total value locked (TVL) surging 263% so far and surpassing $1 billion. according to to the data aggregator DefiLlama. However, as a nascent sector in which builders attempt to create applications compatible with other blockchains, new security concerns could emerge as it grows.
Shahar Madar, Vice President of Security and Trust at Fireblocks, shared with Crypto Briefing his insights on the risks of Bitcoin decentralized applications and the security maturity of the decentralized finance (DeFi) ecosystem.
Crypto Briefing – Have you encountered any issues with the various applications built on Bitcoin that have concerned you?
Shahar Madar – I would say it’s very early. While I think there is a lot of discussion about Bitcoin DeFi, I’m not sure we’re at the stage where it’s as adopted as it could be. Bitcoin is definitely a staple of the blockchain industry and blockchain ecosystem. We consider Wrapped Bitcoin as one of the important tokens and our customers use it a lot.
Regarding DeFi rather than Bitcoin, personally I think it’s too early to tell. Usually the way you look at this sort of thing is that you iterate pretty quickly with different implementations. We have seen it. We see this even with the abstraction of accounts. We see this with certain technologies that we have been talking about for a very long time. As this place is very innovation driven, there will usually be many iterations.
I don’t know if this is specific to Bitcoin DeFi, but generally this sort of thing evolves over time. We only find the main problems or pain points when people start using it.
Crypto Briefing – Recent studies show that private key compromises are the most recurring and damaging attack vectors in the crypto industry. Do you think this will become an even bigger threat?
Shahar Madar – So, since day one, one of the core values that Fireblocks has offered to institutions and, honestly, any organization, any business, is the ability to securely manage their operations and their keys, and securely integrate blockchains on one side.
So that part of private key compromise that a lot of people are familiar with is, in my opinion, heavily mitigated by how we generate the keys and how we store the keys for our clients. The way our self-cultivated platform works is that we leverage MPC and essentially break the private key into three different parts, each of which is kept in a different security vault, so it’s impossible to remove it .
I also want to add other important threats we are seeing today. One of them is the extension of the first one we are talking about, namely key custody. And that is the orchestration and management of smart contracts. We are at a point where people are using social engineering and stealing private keys from contract managers, owners and administrators. When this security process is done with our tokenization platform on top of Fireblocks, you’re obviously in much better shape, because you know it’s all going through our security user management and secure policy engine, which dictates the authorization flow.
If there is a sensitive operation related to the smart contract that you manage, and I say as a DeFi protocol owner, as a token manager and as a stablecoin issuer, you can also do that through the platform Fireblocks. I think this mitigates a lot of that risk of private key compromise.
Another attack vector is dishonest employees, dishonest internals preying on you or being hacked, and attackers exploiting their access and privileges against you. This is the extension of private key management.
We’ve also expanded our DeFi security offering, and this is geared more towards people who transact and operate on-chain. Essentially, this expands what we’re offering them, the ability to authorize sensitive operations with smart contracts and dApps. We expanded this metric because one of the threats we see is phishing dApps, scams that impersonate legitimate decentralized applications or simply malicious smart contracts, which target all traders.
We launched this new suite of features, essentially analyzing every dApp connection you make through the Fireblocks platform, analyzing every interaction you have with a smart contract, and simulating every control call you have, so you can have a idea of what is happening. the expected result. You can feel more comfortable and know what will happen once you approve it. And we’ve integrated that into the whole operational flow that we know institutions that use Fireblocks go through.
Crypto Briefing – Do you think new institutions entering the crypto market now know how to ensure proper custody? Do they prefer to have their own on-call team or do they want to work with companies like Fireblocks?
Shahar Madar – Absolutely. These institutions understand, they enter a space after careful consideration and due diligence. They know there’s an opportunity, but they’re also very knowledgeable about cybersecurity in general. Many of them, when they come to us, also want to learn.
So they’re looking to partner with someone who is an expert in that field. They still have a security team, but still, nine times out of ten, they understand that it’s better to partner and leverage existing technology than to build their own.
Most people don’t grow their own tomatoes, so they don’t need to invent the wheel. If there is battle-proven technology and Fireblocks is definitely one of them, you should use it and be on top. We’re investing a lot and working closely with our big companies who are looking at the market or going all-in and using Fireblocks. We help them with education, we help them understand the best practices that we use in Fireblocks and their entire business around that.
Finally, we listen to them too. That’s part of the reason we offer a lot of customizations and a lot of different deployment models, because we understand that what’s right for a very small business, a very small startup of three guys and a dog, n t’s not the same thing that suits a large institution.
Crypto Briefing – From the previous bull cycle to this one, which has just started, are you seeing any significant developments in crypto security?
Shahar Madar – It’s a cat and mouse game with the attackers. As Fireblocks and as an industry as a whole, we are fighting for broader adoption and better security standards. And we have come a very long way since our inception. And the attackers are still trying to get to us, right? They are always trying to move forward. They’re trying to find new ways to get in and it’s our job as people working in a block of the security ecosystem to continue to pursue them, to continue to block them, to research and investigate what’s going on. ‘they do.
I think our industry overall is doing better than it was two, three, four or five years ago. But on the other hand, we see exploiters changing, evolving, and trying to get ahead of the latest protections and defenses put in place.
It’s a never-ending game. You must continue to research, track and improve. And as far as the role of blocking security companies in space, I think that’s a big part of it. You need to stay informed about the latest threats. And if that’s not the case, and if you’re just using the same technology that you developed five years ago, you’re not going to keep people safe.
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Dubai, United Arab Emirates, August 1, 2024, Chainwire
Consumer adoption of cryptocurrencies is a snowball that is accelerating by the day. More and more people around the world are clamoring for access to DeFi. However, the user interface and user experience of cryptocurrencies still lag behind their fundamental utility, and users lack the simple and secure access they need to truly on-chain products.
Haust Network is a network and suite of products focused on changing this paradigm and bringing DeFi to the masses. To achieve this goal, Haust Network has announced its far-reaching partnership with bridgeseasoned veterans in rapidly delivering revolutionary blockchain utilities for projects. The Gateway team empowers blockchain developers to build DAOs, NFT platforms, payment services, and more. They drive adoption of crypto primitives for individuals and institutions around the world by helping everyone build their on-chain presence.
Gateway specializes in connecting sovereign blockchains to the Aggregation Layer (AggLayer). The AggLayer is a single unified contract that powers the Ethereum bridge of many disparate blockchains, allowing them all to connect to a single unified liquidity pool. The AggLayer abstracts away the complexities of cross-chain DeFi, making tedious multi-chain transactions as easy for the end user as a single click. It’s all about creating access to DeFi, and with Polygon’s technology and the help of Gateways, Haust is doing just that.
As part of their partnership, Gateway will build an advanced zkEVM blockchain for Haust Network, leveraging its extensive experience to deploy ultra-fast sovereign applications with unmatched security, and enabling Haust Network to deliver its products to its audience.
The recently announced launch of the Haust Wallet is a Telegram mini-app that provides users with access to DeFi directly through the Telegram interface. Users who deposit funds into the wallet will have access to all standard send/receive services and generate an automatic yield on their funds. The yield is generated by Haust Network’s interconnected network of smart contracts, Haustoria, which provides automated and passive DeFi yielding.
As part of this partnership, the Haust Network development team will work closely with Gateway developers to launch Haust Network. Gateway is an implementation provider for Polygon CDK and zkEVM technology, which the Haust wallet will leverage to deliver advanced DeFi tools directly to the wallet users’ fingertips. Haust’s partnership with Gateway comes shortly after the announcement of a high-profile alliance with the Polygon community. Together, the three will work to build Haust Network and connect its products to the AggLayer.
About Haust Network
Haust Network is an application-based absolute liquidity network and will be built to be compatible with the Ethereum Virtual Machine (EVM). Haust aims to provide native yield to all users’ assets. In Telegram’s Haust Wallet, users can spend and collect their cryptocurrencies in one easy place, at the same time. Haust operates its network of self-balancing smart contracts that interact across multiple blockchains and then efficiently funnel what has been generated to Haust users.
About Gateway
bridge is a leading white-label blockchain provider that offers no-code protocol deployment. Users can launch custom blockchains in just ten minutes. They are an implementation provider for Polygon CDK and have already helped projects like Wirex, Gnosis Pay, and PalmNFT bring new utility to the crypto landscape.
About Polygon Labs
Polygon Laboratories Polygon Labs is a software development company building and developing a network of aggregated blockchains via the AggLayer, secured by Ethereum. As a public infrastructure, the AggLayer will aggregate the user bases and liquidity of any connected chain, and leverage Ethereum as the settlement layer. Polygon Labs has also contributed to the core development of several widely adopted scaling protocols and tools for launching blockchains, including Polygon PoS, Polygon zkEVM, and Polygon Miden, which is currently under development, as well as the Polygon CDK.
Contact
Lana Kovalski
haustnetwork@gmail.com
- Ethena and ByBit will allow derivatives traders to use USDe as collateral.
- There is a risk in letting traders use an asset partially backed by derivatives to place more bets.
Ethena has downplayed the dangers of a new feature, which will allow traders to put up its synthetic dollar USDe as collateral when trading derivatives, which are risky bets on the prices of crypto assets.
While allowing users to underwrite their trades with yield-bearing USDe is an attractive prospect, Ethena said there is potential risk in letting traders use an asset partially backed by derivatives to place even more derivatives bets.
“We have taken this risk into account and that is why Ethena operates across more than five different sites,” said Conor Ryder, head of research at Ethena Labs. DL News.
The move comes as competition in the stablecoin sector intensifies.
In recent weeks, PayPal grown up the amount of its stablecoin PYUSD in circulation 96%, while the MakerDAO cooperative plans a rebrandingaiming to increase the supply of its DAI stablecoin to 100 billion.
US dollar growth stagnates
It comes as Ethena has lost momentum after its blockbuster launch in December.
In early July, USDe reached a record level of 3.6 billion in circulation.
That figure has now fallen by 11% to around 3.2 billion.
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New uses for USDe could boost demand for Ethena’s products.
This is where the new plan, announcement Tuesday with ByBit, one of its partner exchanges, is coming.
Ethena users create USDe by depositing Bitcoin or Ether into the protocol.
Ethena then covers these deposits with short positions – bearish bets – on the corresponding asset.
This creates a stable support for USDe, unaffected by price fluctuations in Bitcoin or Ether.
Mitigate risks
While using USDe as collateral for derivatives trading is proving popular, it is unclear what the effects will be if the cryptocurrency market experiences major fluctuations.
Using derivatives as collateral to place more bets has already had disastrous effects.
In June 2022, Lido’s liquid staking token stETH broke its peg to Ether following the fallout from the Terra collapse.
Many traders who used looping leverage to increase their stETH staking yields were liquidated, creating a cascade that caused the price of Ether to drop by more than 43%.
Ethena Labs founder Guy Young said: DL News His office and his partners have taken many precautions.
Ethena spreads bearish bets supporting the USDe across the five exchanges it partners with.
According to Ethena, 48% of short positions supporting USDe are on Binance, 23% on ByBit, 20% on OKX, 5% on Deribit, and 1% on Bitget. website.
In doing so, Ethena aims to minimize the impact of an unforeseen event on a stock market.
The same theory applies to the distribution of risks across different supporting assets.
Fifty percent of USDe is backed by Bitcoin, 30% by Ether, 11% by Ether liquid staking tokens, and 8% by Tether’s USDT stablecoin.
Previous reviews
Ethena has already been criticised regarding the risks associated with USDe.
Some have compared USDe to TerraUSD, an undercollateralized stablecoin that collapsed in 2022.
“It’s not a good design for long-term stability,” said Austin Campbell, an assistant professor at Columbia Business School. said as the USDe launch approaches.
Young replied to critics, saying the industry needs to be more diligent and careful when “marketing products to users who might not understand them as well as we do.”
Ethena has since added a disclaimer on its website stating that USDe is not the same as a fiat stablecoin like USDC or USDT.
“This means that the risks involved are inherently different,” the project says on its website.
Tim Craig is DL News DeFi correspondent based in Edinburgh. Feel free to share your tips with us at tim@dlnews.com.
In July 2024, the cryptocurrency industry suffered a series of devastating attacks, resulting in losses amounting to approximately $266 million.
Blockchain Research Firm Peck Shield revealed in an X post On August 1, attacks on decentralized protocols in July reached $266 million, a 51% increase from $176 million reported in June.
The most significant breach last month involved WazirX, one of India’s largest cryptocurrency exchanges, which lost $230 million in what appears to be a highly sophisticated attack by North Korean hackers. The attack was a major blow to the stock market, leading to a break in withdrawals. Subsequently, WazirX launched a program in order to recover the funds.
Another notable incident involved Compound Finance, a decentralized lending protocol, which suffered a governance attack by a group known as the “Golden Boys,” who passed a proposal who allocated 499,000 COMP tokens – valued at $24 million – to a vault under their control.
The cross-chain liquidity aggregation protocol LI.FI also fell victim On July 16, a hack resulted in losses of $9.73 million. Additionally, Bittensor, a decentralized machine learning network, was one of the first protocols to suffer an exploit last month, loming $8 million on July 3 due to an attack targeting its staking mechanism.
Meanwhile, Rho Markets, a lending protocol, suffered a $7.6 million breach. However, in an interesting twist, the exploiters research to return the stolen funds, claiming the incident was not a hack.
July 31, reports The Terra blockchain protocol was also hacked, resulting in a loss of $6.8 million across multiple cryptocurrencies. As crypto.news reported, the attack exploited a reentrancy vulnerability that had been identified a few months ago.
Dough Finance, a liquidity protocol, lost $1.8 million in Ethereum (ETH) and USD Coin (USDC) to a flash loan attack on July 12. Similarly, Minterest, a lending and borrowing protocol, saw a loss of $1.4 million due to exchange rate manipulation in one of its markets.
Decentralized staking platform MonoSwap also reported a loss of $1.3 million following an attack that allowed the perpetrators to withdraw the liquidity staked on the protocol. Finally, Delta Prime, another decentralized finance platform, suffered a $1 million breach, although $900,000 of the stolen funds was later recovered.
The convergence of Bitcoin’s robust security and Layer 2 scaling solutions has catalyzed the emergence of a vibrant DeFi ecosystem.
By expanding Bitcoin’s utility beyond simple peer-to-peer payments, these advancements have opened up a new frontier of financial possibilities, allowing users to participate in decentralized lending, trading, and other complex smart contract operations on Bitcoin.
Read on to learn about the rise of Bitcoin-based decentralized finance and how the space has expanded to accommodate a new generation of native assets and features.
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What is DeFi?
Decentralized finance (DeFi) represents a paradigm shift in financial services, offering internet-based financial products such as trading, lending, and borrowing through the use of decentralized public blockchains.
By implementing blockchains, smart contracts, and digital assets, DeFi protocols provide financial services through a decentralized ecosystem, where participants do not have to deal with intermediaries when transacting.
What is Bitcoin DeFi?
The inherent limitations of the Bitcoin mainchain in supporting the intricacies of decentralized finance have created the need to develop smart contract-based Layer 2 solutions.
Additionally, the advent of the Ordinals protocol in 2023, which facilitated the emergence of fungible token standards such as BRC-20 and Runes, catalyzed the growth of DeFi on the Bitcoin blockchain.
This expansion in protocol diversity has broadened the applications of the world’s leading cryptocurrency network beyond the core base-layer use cases around value preservation and transactional capabilities.
Therefore, Bitcoin DeFi has become a nascent sector within the digital asset market, after previously being a missing essential part of the Bitcoin ecosystem.
Bitcoin DeFi in its early days
Integrating decentralized finance (DeFi) concepts into the Bitcoin ecosystem has been a journey of innovation and perseverance. Early attempts to bridge the gap between Bitcoin’s fundamental simplicity and DeFi’s complexities have spawned pioneering projects that, while laying essential foundations, have also encountered significant obstacles.
Colored coins
Colored coins represented an early foray into tokenizing real-world assets on the Bitcoin blockchain. By leveraging the existing network to track ownership of assets ranging from stocks to real estate, this approach highlighted Bitcoin’s potential as a platform beyond digital currency. However, scalability and practical implementation challenges have limited its widespread adoption.
Counterpart
Building on the colored coins, Counterparty has become a platform for creating and trading digital assets, including non-fungible tokens (NFTs), on Bitcoin.
The introduction of popular projects like Rare Pepe NFTs has demonstrated the growing appeal of digital collectibles. However, constraints around user experience and network efficiency have hampered its full potential.
These early experiments, while not fully realizing their ambitions, served as valuable stepping stones, informing Bitcoin DeFi’s subsequent developments. Their challenges highlighted the need for more sophisticated infrastructure and protocols to harness the full potential of decentralized finance on the Bitcoin network.
Bitcoin DeFi Today
Today, building DeFi applications on Bitcoin is primarily done in the realm of Layer 2 (L2) networks. This architectural choice is motivated by the limitations of Bitcoin’s base layer in supporting complex programmable smart contracts.
Bitcoin’s original design prioritized security and decentralization over programmability, making it difficult to develop sophisticated DeFi protocols directly on its blockchain. However, the recent emergence of protocols like Ordinals, BRC-20, and Runes, while not DeFi in their own right, has sparked possibilities for future DeFi-like applications on the main chain.
In contrast, L2 solutions offer a scalable and programmable environment built on Bitcoin, enabling the creation of various DeFi products.
By expanding Bitcoin’s capabilities without compromising its core principles, L2s have become the preferred platform for developers looking to build DeFi applications that encompass trading, lending, staking, and more.
Leading L2 networks such as Lightning Network, Rootstock, Stacks, and Build on Bitcoin provide the infrastructure for these efforts. Some of these L2s have even introduced their own native tokens to the network, further expanding Bitcoin’s DeFi ecosystem.
Essentially, while Bitcoin’s core layer presents challenges for DeFi development, its security and decentralization have provided a foundational layer for the innovative L2 landscape to thrive.
Bitcoin Layer 2 offers a promising path to building a robust and thriving Bitcoin-based DeFi ecosystem that offers trading, staking, lending, and borrowing. All you need is a DeFi Wallet like Xverse to access the new world of decentralized financial services secured by Bitcoin.
Conclusion
The integration of DeFi principles into the Bitcoin ecosystem, primarily facilitated by Layer 2 solutions, marks a significant evolution in the digital asset landscape.
Building on the foundational work of pioneers like Colored Coins and Counterparty, the industry has evolved into more sophisticated platforms like Rootstock, Stacks, and Build on Bitcoin to create a thriving Bitcoin-powered DeFi ecosystem.
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