Economic Security Audit

This core component audits the token supply, distribution, and emission schedule to ensure long-term sustainability. It models incentive alignment between stakeholders (users, liquidity providers, governance token holders) and identifies risks like hyperinflation, misaligned rewards, or value accrual failures. For example, it would analyze if a protocol's staking APY is sustainable or if governance tokens are distributed in a way that could lead to centralization.

The audit maps and stress-tests the governance framework, including voting mechanisms, proposal processes, and treasury management. It identifies centralization risks, such as excessive multisig control or vulnerable upgrade paths, and evaluates the resilience against governance attacks like vote buying or proposal spam. A key question is: 'Can a small group of actors unilaterally drain the treasury or change core parameters?'

Auditors simulate various on-chain attack vectors to test the protocol's economic defenses. This includes modeling flash loan attacks for oracle manipulation, liquidity drain scenarios in AMMs, staking derivative exploits, and governance takeovers. The goal is to quantify potential losses under adversarial conditions, moving beyond the binary 'pass/fail' of code audits to a probabilistic risk assessment.

This feature analyzes how changes to key protocol parameters (e.g., fee rates, collateral factors, reward speeds) impact system health. It uses sensitivity analysis and Monte Carlo simulations to see how the protocol behaves under extreme market conditions like a black swan event or sustained bear market. The output identifies fragile parameters and recommends safe adjustment bounds for the DAO.

The audit traces all value flows within the protocol's economic design. It maps how value (fees, rewards, penalties) is generated, captured, and distributed. This reveals issues like economic leakage (value exiting the system without accruing to stakeholders), unsustainable subsidies, or slippage in complex DeFi lego systems where small changes cascade. It answers: 'Where does the protocol's revenue actually go?'

Identifies off-chain and systemic dependencies that pose economic risks. This includes reliance on specific oracle providers (e.g., Chainlink), bridged assets, liquidity sources (e.g., a single DEX pool), or key personnel with administrative privileges. The audit assesses the cost and feasibility of these dependencies failing or being maliciously manipulated, providing a roadmap for decentralization.

This core area examines the token distribution, emission schedules, and utility to assess long-term sustainability and stakeholder alignment. It analyzes:

• Vesting schedules for team and investors to prevent supply dumps.
• Staking rewards and inflation rates to ensure long-term validator participation.
• The value accrual mechanism for the native token, ensuring it captures protocol value.

Audits rigorously test the slashing mechanisms designed to punish malicious or negligent validators. This involves:

• Verifying the logic and parameters for double-signing, downtime, and other punishable faults.
• Ensuring penalty severity is economically significant enough to deter attacks but not so severe it discourages participation.
• Analyzing the slash fund distribution (e.g., burning vs. redistribution) and its impact on the token's security budget.

This assesses how the protocol's design exposes users to value extraction by block producers. The audit identifies:

• Front-running and sandwich attack vulnerabilities in AMMs or lending liquidations.
• The protocol's reliance on transaction ordering fairness.
• Mitigations like commit-reveal schemes, fair ordering protocols, or encrypted mempools.

Analysis focuses on the economic vulnerabilities within the decentralized governance system. Key checks include:

• Vote buying (e.g., via flash loans) and proposal spam attacks.
• The concentration of voting power (whale dominance) and the effectiveness of vote delegation.
• Treasury control risks and the economic safeguards for executing privileged operations.

Evaluates the economic robustness of price feed oracles, which are critical for DeFi protocols. The audit tests:

• Resistance to flash loan attacks used to manipulate oracle prices.
• The economic cost to attack the oracle relative to the protocol's total value locked (TVL).
• The design of decentralized oracle networks and their incentive structures for honest reporting.

Examines the economic assumptions around user liquidity and the safety of withdrawal mechanisms. This covers:

• Bank run scenarios and the stability of staking derivatives (e.g., liquid staking tokens).
• The withdrawal delay (epochs, unbonding periods) and its role as a security checkpoint.
• Liquidity pool imbalances and the risk of impermanent loss affecting protocol stability.

Occurs when a protocol's reward structure encourages behavior that is detrimental to its long-term health. This can lead to short-term exploitation and protocol death spirals.

• Examples: Liquidity mining emissions that far exceed protocol revenue, creating unsustainable sell pressure.
• Risk: Users are incentivized to extract value and exit, rather than participate in the ecosystem.

Flaws in a decentralized autonomous organization (DAO) or voting system that allow malicious actors to seize control or extract value.

• Vote Manipulation: Exploiting tokenomics (e.g., flash loan attacks) to gain temporary voting power.
• Treasury Drain: Proposals that misuse the protocol treasury for private gain.
• Centralization Risks: Over-reliance on a multi-sig or admin keys as a 'fail-safe'.

A vulnerability where an attacker artificially influences the price feed an on-chain protocol relies on, leading to incorrect valuations and liquidations.

• Mechanism: Often executed via flash loans to create massive, temporary price swings on a decentralized exchange (DEX).
• Impact: Can enable under-collateralized borrowing or the theft of collateral from lending markets.

An attack that makes a protocol's core functions economically non-viable for legitimate users by exploiting fee structures or resource costs.

• How it works: An attacker spams transactions to inflate gas fees or consume a shared resource pool (like a liquidity pool), pricing out normal activity.
• Consequence: Renders the protocol unusable without directly breaching its smart contract code.

Weaknesses in Proof-of-Stake (PoS) or staking mechanisms that reduce security guarantees or allow value extraction.

• Slashing Conditions: Ill-defined or impossible to trigger, removing the economic penalty for malicious validators.
• Reward Distribution: Flaws that allow staking pool operators or early entrants to capture a disproportionate share of rewards.

Vulnerabilities arising from the specific mathematical design of automated market maker (AMM) pools that can be exploited for profit.

• Impermanent Loss Asymmetry: Pools where one asset is significantly more volatile, disproportionately harming liquidity providers (LPs).
• Concentrated Liquidity Risks: Inefficient price range selection leading to minimal fees earned or high exposure to slippage.

The foundational security model of a blockchain, derived from the cost to attack versus the potential reward. It is the property an Economic Security Audit aims to measure and verify. Key components include:

• Staking mechanisms and slashing conditions.
• Tokenomics and emission schedules.
• Validator/delegator incentives and centralization risks.
• The cost of a 51% attack or other consensus failures.

A critical metric for assessing a protocol's security budget. TVS represents the total economic value that a blockchain or staking system is responsible for protecting. An Economic Security Audit evaluates if the cost to attack (e.g., cost of acquiring enough stake) is a sufficient multiple of the TVS to deter rational adversaries. A high TVS with low attack cost indicates severe vulnerability.

Pre-programmed penalties imposed on validators or stakers for malicious or faulty behavior (e.g., double-signing, downtime). An audit rigorously tests:

• The economic impact of slashing on an attacker's capital.
• Potential for collusion to avoid penalties.
• Unintended consequences, such as slashing that disproportionately harms honest but poor-performing nodes.
• The governance process for changing slashing parameters.

Analysis of how a protocol's decentralized governance can be economically exploited. This includes:

• Vote buying and token whale manipulation to pass malicious proposals.
• Timelock exploits and proposal bundling.
• The economic cost of executing a governance takeover versus the potential profit from extracting protocol value or treasury assets.