DeFi Developers: Neglecting security development is stifling your innovation
- Nominis Research Team
- Jan 7
- 3 min read
Research shows the strain on DeFi innovation as a direct result of developers neglecting security issues
Security tends to be neglected, overlooked or deprioritised, taking a back seat given the innovation pressure that developers are under. However, security remains an absolutely paramount concern, with security risks often detrimental to financial assets and reputation of exchanges. Research suggests that as opposed to focusing on security solutions, DeFi devs were working mostly on stablecoins or DEXes, opting to focus on innovative development rather than security, or a blend of both.
The intertwined nature of security and innovation, both vying for focus, is brought to the forefront further considering the major decrease in newcomer-developers in the industry due to the perceived risky, unregulated perception of the DeFi space. In general, the number of DeFi developers fell in general by -22% in 2023, perhaps another indicator of the pressure on security concerns in the industry and a difficulty to balance security and innovation equally.
Why is security neglected?
Naturally, the DeFi space is highly competitive and fast moving. Developers may be under pressure to launch products quickly, stay ahead of competitors and attract new customers, especially in a sector when projects can quickly become obsolete and irrelevant. This can lead to prioritizing speed and delivery of features rather than robust security measures which can be a lengthy process to fully implement. This may lead developers to rush, or entirely negate, the processes of code auditing, testing and reviewing to check for security gaps.
The nature of Blockchain security is complex, requiring skills that are not necessarily widespread across the industry. Understanding and implementing cryptographic protocols, secure smart contract coding and vulnerability mitigation can be challenging without in-depth security expertise, resources and tools. Often, the safety or security of code can be assumed, with developers trusting the immutability and transparency of blockchain. In reality, these factors highlight the inherent need for security, as smart contracts are easily exploited given their open-source nature.
In the meantime, DeFi operates largely in an unregulated space, which lacks enforced security standards. Unlike traditional finance, which has regulatory bodies requiring specific security measures, DeFi protocols are not bound by such requirements, perhaps because the decentralized nature of the space encourages autonomy. This can lead to neglect of security measures on an individual level, without authoritative guidance. In reality, a lack of compliance can have severe legal consequences, and while regulatory authorities monitor AML and CTF compliance, it is difficult for them to enforce security standards and punishment for non-compliance compared to in the traditional finance space.
The nature of the attacks concerning the DeFi space are constantly evolving, perhaps seeming inevitable and unstoppable regardless of developed security features. Attack types are varied, such as flash loans, oracle manipulation and smart contract vulnerabilities, and security methods can become obsolete quickly as malicious actors become more sophisticated in their attacking methods.
Consequences of security neglect
The absence of robust security measures in the DeFi sphere poses significant risks, not only to individual users and developers but to the entire industry. Security breaches and vulnerabilities such as hacks, re-entry bugs and oracle manipulation can lead to direct financial losses for users and hinder developers from launching and scaling innovative projects. These incidents create a ripple effect, eroding confidence in the broader DeFi ecosystem, leading to token sell-offs and market downturns. This ultimately destabilizes cryptocurrency values, and amplifies perceptions of risk.
As a result, the lack of trust and reputation damage to platforms discourages new talent and developers from entering the sector, stalling innovation and progress. This cycle perpetuates the notion that DeFi is inherently unsafe; riddled with security concerns, which further deters investment and innovation at a critical time for its growth and mainstream acceptance. The research proves - if you are invested in innovative solutions, you must equally invest in security solutions too.
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