Formal Analysis of Composable DeFi Protocols

Abstract

Decentralized finance (DeFi) has become one of the most successful applications of blockchain and smart contracts. The DeFi ecosystem enables a wide range of crypto-financial activities, while the underlying smart contracts often contain bugs, with many vulnerabilities arising from the unforeseen consequences of composing DeFi protocols together. In this paper, we propose a formal process-algebraic technique that models DeFi protocols in a compositional manner to allow for efficient property verification. We also conduct a case study to demonstrate the proposed approach in analyzing the composition of two interacting DeFi protocols, namely, Curve and Compound. Finally, we discuss how the proposed modeling and verification approach can be used to analyze financial and security properties of interest.

SoK: Lending Pools in Decentralized Finance

“…Future research supported by the developed tool could include the formalization of further attacks and properties of the model. Specifically, one could study resistance to illiquidity, as suggested by [22], or the behaviour of multipools configurations, each offering different market opportunities to agents, as proposed by [35] and partially developed in [32].…”

“…Verification of DeFi applications is a fairly recent research area where several techniques have been applied. We focus our discussion on works devoted to formal modelling and reasoning of DeFi applications, which typically follow two parallel directions: verification of the model properties [9,5,2,32], and statistical analysis of the model variables [4,14,22,13,19].…”

“…Their study combines a game-theoretic approach with probabilistic model checking, ultimately validating their results with the model checker PRISM [23]. Another example of research in this direction is Tolmach et al [32] which developed the first multi-pools model and verified invariant properties initially formulated by [8]. Finally, [2] proposed a very relevant study on smart contracts, by modelling not only the contracts and the agents' behaviour but also the underlying blockchain using the BIP framework [7] and statistical model checking (as we do).…”

“…Given the considerable amount of funds daily exchanged on DeFi platforms [1,16], even minor design flaws could determine massive and intolerable losses [21]. Notwithstanding the increasing interest of several research groups in this area [9,5,2,32,4,19], the complexity of DeFi protocols yields new interesting research problems. Formal verification of these systems is crucial, in order to ensure their correctness and security.…”