Aurigami Finance (Aurigami) conducted a risk management assessment of the Aurigami protocol's cybersecurity framework. The risk management assessment was conducted by using Risk DAO’s risk assessment framework by implementing rigorous quantitative analysis to simulate the protocol's worst-case cybersecurity breach scenarios.
The assessment report revealed that there is no significant cybersecurity risk for Aurigami, even in the most stressful situation owing to lending-based capital requirements and the cybersecurity framework implemented by the company.
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In light of the hacking of Kyber Network and Curve Finance, the associated risks of losing millions of dollars due to a hack or exploit are more apparent than ever before. Due to this, conducting a risk assessment to identify scenarios where all blockchain implementation risks can be eliminated or minimized is critical for blockchain startups. However, these threats are novel and hostile actors have various entry points to inflict damage to the cybersecurity framework of a blockchain startup.
For instance, it is difficult for blockchain startups to implement a blockchain solution without a reliable permission management system to block hackers from accessing internal controls. Having many levels of permissions ensures that no sensitive data is exposed.
Experts in the field of risk management have acknowledged that blockchain technology risk assessment is a critical tool for risk management concerning smart contracts. Understanding smart contract risks are crucial for crypto investors to fully understand any technology risk crypto investors may be exposed to when using smart contract-based DeFi applications. For example, interacting with malicious smart contracts can lead to the drainage of virtual assets from the metamask application.
According to Forbes, investors have lost more than 2$ Billion USD across DeFi platforms due to cybersecurity hacks in 2021 and 2022. The threat to a blockchain startup from hacks, theft or a smart contract attack, is a prevalent cybersecurity concern regarding safeguarding users’ funds exposed to smart contract-based cybersecurity risks. Therefore, it is critical for blockchain startups to adapt to the ever-shifting landscape of cybersecurity governance and regulatory requirements to protect their users. Hackers can seize control of the smart contract and use it for their nefarious ends such as money laundering, financing of terrorism and investor fraud which makes recovery of funds difficult for crypto investors.
When blockchain startups fail to incorporate blockchain technology into their existing infrastructure, startup risks their reputations. MtGox is a perfect example of this. Blockchain companies suffer reputational risks when investors lose their funds and have a negative experience due to a cybersecurity flow or error - this is especially bad for the blockchain industry as a whole as it maligns the name of the industry.
Data protection-related cybersecurity risks also exist for blockchain startups, where it gets difficult for startups to comply with data protection laws across the EU, US and APAC regions. Hefty million-dollar penalties can be fined on startups. For instance, Instagram was slapped with a 405 million Euro fine for data protection violations. It is difficult for blockchain companies to keep track of and comply with the requirements of every jurisdiction in which they operate to comply with data protection laws to minimise any legal risk to the startup. Therefore, blockchain startups must conduct a risk assessment to understand any possible technological, capital or infrastructural risk that may negatively impact the smart contract application. Further, users should be proactive in influencing blockchain startups to conduct such risk assessments on smart contract applications.
Aurigami is a decentralized, non-custodial liquidity protocol. The protocol enables individuals to lend, borrow, and earn interest on their digital assets. Depositors provide liquidity to the protocol to earn a passive income, whereas borrowers can borrow in an over-collateralized manner.
It is an Aurora-based lending protocol that employs gamification and the idea of Liquid Locked Tokens to create a new, sustainable tokenomics model for liquidity mining.
Risk DAO is a service DAO that focuses on offering DeFi lending and borrowing protocols and L1 networks a new, open-source risk assessment framework and related audits. Risk DAO offers clients an open-source risk assessment framework and related audits to ensure the platform's liquidity. They make judgments based on past performance and forecast the future using the current liquidity and potential market outcomes.
Integrating risk management tools across DeFi platforms is essential to averting situations like the Luna fiasco, where investors lost all of their money. Therefore, Defi platforms need to make risk management one of their highest priorities and conduct a risk assessment to understand any underpinning risk that may affect a blockchain application.
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Image credits: Rodion Kutsaev.