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Ensure Smart Contract Success with These Expert Audit Tips

Paulina Lewandowska

03 Jan 2023
Ensure Smart Contract Success with These Expert Audit Tips

The use of smart contracts, a tool that enables the automation of several processes and transactions, has grown significantly in the realm of blockchain technology. Before these smart contracts are implemented, it is crucial to guarantee their security and dependability. Smart contract auditing is useful in this situation.

The finest advice and methods for auditing smart contracts, as provided by seasoned smart contract developers, will be covered in this article. You may make sure that your smart contracts are of the greatest caliber and without flaws by adhering to these suggestions.

We hope that this article will provide valuable insights and guidance for those looking to audit their smart contracts effectively.

Table of Contents:

Understand the purpose and functionality of the contract

Before performing an audit, it is crucial to comprehend the function and intended use of a smart contract. This will enable you to find any potential problems or weaknesses and make sure the contract is functioning as planned.

The following points should be taken into account when figuring out the function and goal of a smart contract:

  1. Who will use the contract, and what are their needs and objectives? Identify the stakeholders.
  2. Establish the business logic: What is the contract meant to accomplish? What are the parameters for the input and output, and how should the contract handle various circumstances?
  3. Recognize the environment: How will the contract be used in that environment? What are the limitations and restrictions of the blockchain platform that will be used for its deployment?
  4. Take into account the long-term effects of the contract: How will the agreement be used going forward? Will it ever require updating or changing, and if so, how will those changes be handled?

You may more easily spot possible problems and make sure the contract is appropriate for its intended use by fully comprehending the function and purpose of a smart contract.

Review the code

Understanding the function and intended use of the contract is crucial when conducting a smart contract audit. This will enable you to find any potential problems or weaknesses and make sure the contract is functioning as planned. A static code analysis tool can be used to evaluate the code and help find potential problems including grammatical mistakes, bugs, and security vulnerabilities. It's also critical to adhere to best practices for developing smart contracts, such as making use of secure libraries, managing exceptions correctly, and carrying out appropriate testing and error management. You should also look for widespread security flaws like uninitialized variables, reentrancy attacks, and unsafe random number generation. Additionally, it's critical to ensure that the code is well-written, simple to comprehend, and maintained, as well as that the contract's logic is right and that it appropriately addresses all potential cases. You can see any problems and make sure the contract is secure and error-free by carefully going over the code.

Test the smart contract

A smart contract must be extensively examined during testing to make sure it works as planned and has no unforeseen repercussions. For this, you need to:

  1. Create test cases that account for all edge situations and potential eventualities. This will make sure that every possible problem is found and that the contract is thoroughly tested.
  2. Automate the testing procedure using a testing framework like Ganache or Truffle. As a result, running test cases and monitoring the outcomes will be simpler.
  3. Utilize tools like Mythril or Oyente to scan for common security flaws. By doing this, you can make that the contract is safe and has no weaknesses that could be used against it.
  4. Verify that the contract operates as planned and generates the desired outcomes. This will support the idea that the contract is operating properly.
  5. Verify that the contract is optimized for gas utilization and free of extra code that can drive up gas prices. This will help to guarantee the contract's effectiveness and economy.

Check for correctness

A crucial step in the audit process is verifying a smart contract's accuracy. Verifying that a contract accomplishes its goals and complies with the contract owner's specifications is part of ensuring its validity. You must first analyze the contract's details and comprehend the conditions and limitations in order to verify that everything is correct. You can use this to find any potential problems or places that require more investigation.

The next step is to check the code for flaws or faults to make sure it follows the contract's logic. This will make it easier to verify that the contract's logic is sound and that it appropriately accounts for all potential outcomes.

It is crucial to confirm that the contract complies with applicable rules and regulations if it will be utilized in a regulated environment. This can entail consulting a legal expert or doing more investigation to verify compliance.

You can make sure the contract is appropriate for its intended use and has no unintended consequences by carefully checking for accuracy. This is crucial to ensuring that the contract operates correctly and meets its intended goals.

Check for efficiency

You should make sure the contract is optimized for gas usage and free of any extraneous code that can raise gas prices in order to verify for efficiency. This could lower the cost of using the contract and increase its usefulness for users.

You should study the contract's code to verify for efficiency and search for any places where gas utilization could be maximized. To reduce gas consumption, this may entail eliminating pointless code or improving certain operations. Additionally, you should test the contract to gauge its gas consumption and make sure it is within acceptable bounds.

Checking for backward compatibility

Checking for backward compatibility is also important if the contract is intended to be used on a specific blockchain platform. To check for backward compatibility, you should ensure that the contract is compatible with the version of the platform it will be deployed on. This may involve reviewing the contract's code to ensure that it uses features and functions that are supported by the platform, and testing the contract to confirm that it functions correctly on the platform.

By checking for efficiency and backward compatibility, you can ensure that the contract is optimized for use and can be deployed smoothly on the intended platform.

Review the contract's dependencies

It is crucial to examine the contract's dependencies during a smart contract audit to make sure that it is utilizing the most recent and safe versions of any external libraries or contracts it depends on. It is vital to ensure that the contract is using the most recent and secure versions because outdated or insecure dependencies can cause flaws or mistakes.

You should first look at the contract's code to find any external libraries or other contracts that it depends on before reviewing the contract's dependencies. The versions of these dependencies should then be checked to make sure they are current and secure. You should suggest updating the contract's dependencies to the most recent and secure versions if you discover that they are out-of-date or unsafe.

Checking the dependencies that the contract is using for any vulnerabilities or known problems is also a smart idea. Researching the dependencies and looking for any security advisories or other warnings will help you achieve this. You can contribute to making sure that the contract is as secure as possible by going over the dependencies in this manner.

Overall, a critical stage in the smart contract audit process is carefully analyzing the contract's dependencies. By doing so, you can lower the possibility that the contract contains flaws or inaccuracies and increase its security.

Review the contract's deployment and ownership

To make sure that a smart contract is secure and that only authorized parties can make modifications to it, it is required to review the deployment and ownership of the contract during an audit. This makes it more difficult for someone to gain access or modify the contract.

You must first determine who the contract's owner is and how it was used before you can analyze the contract's ownership and deployment. The contract should then be owned and deployed securely, utilizing best practices like a secure key management system and adhering to appropriate security protocols.

Additionally, make sure that only those with permission can alter the contract. This can entail checking the permissions and access controls of the contract to make sure that only parties with the proper authorization can change it.

In general, examining the contract's deployment and ownership is an important step in the process of a smart contract audit. In order to avoid unauthorized access or contract tampering, it can assist ensure that the contract is secure and that only authorized parties are able to make changes to it.

Additionally, make sure that only those with permission can alter the contract. This can entail checking the permissions and access controls of the contract to make sure that only parties with the proper authorization can change it.

In general, examining the contract's deployment and ownership is an important step in the process of a smart contract audit. In order to avoid unauthorized access or contract tampering, it can assist ensure that the contract is secure and that only authorized parties are able to make changes to it.

It is advisable to consult a legal expert to ensure that the contract is enforceable if it is meant to have legal ramifications. You can better comprehend the contract's legal ramifications and ensure that it is constructed in a way that makes it enforceable by consulting a legal expert. They can also provide you advice on any further measures that might be required to make sure the contract is legally enforceable.

Overall, a critical stage in the smart contract audit process is taking the contract's legal consequences into account. It can aid in ensuring that the contract complies with all applicable legal requirements and is legally enforceable.

Conclusion

A thorough audit is necessary to make sure a smart contract is trustworthy and safe. As part of a smart contract audit, it is important to thoroughly test the contract to make sure it works as intended and has no unintended consequences. You should also confirm that the contract satisfies the contract owner's requirements, look for efficiency and backward compatibility, review the contract's dependencies, deployment, and ownership, and think about the contract's legal ramifications. These guidelines can help you make sure that a smart contract is trustworthy, safe, and appropriate for its intended use.

Be sure to read our other articles on the subject for more details on smart contract audits. You may gain extra knowledge and best practices for auditing smart contracts from these resources.

Tagi

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Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Quadratic Voting in Web3

Kajetan Olas

04 Dec 2024
Quadratic Voting in Web3

Decentralized systems are reshaping how we interact, conduct transactions, and govern online communities. As Web3 continues to advance, the necessity for effective and fair voting mechanisms becomes apparent. Traditional voting systems, such as the one-token-one-vote model, often fall short in capturing the intensity of individual preferences, which can result in centralization. Quadratic Voting (QV) addresses this challenge by enabling individuals to express not only their choices but also the strength of their preferences.

Table of Contents

In QV, voters are allocated a budget of credits that they can spend to cast votes on various issues. The cost of casting multiple votes on a single issue increases quadratically, meaning that each additional vote costs more than the last. This system allows for a more precise expression of preferences, as individuals can invest more heavily in issues they care deeply about while conserving credits on matters of lesser importance.

Understanding Quadratic Voting

Quadratic Voting (QV) is a voting system designed to capture not only the choices of individuals but also the strength of their preferences. In most DAO voting mechanisms, each person typically has one vote per token, which limits the ability to express how strongly they feel about a particular matter. Furthermore, QV limits the power of whales and founding team who typically have large token allocations. These problems are adressed by making the cost of each additional vote increase quadratically.

In QV, each voter is given a budget of credits or tokens that they can spend to cast votes on various issues. The key principle is that the cost to cast n votes on a single issue is proportional to the square of n. This quadratic cost function ensures that while voters can express stronger preferences, doing so requires a disproportionately higher expenditure of their voting credits. This mechanism discourages voters from concentrating all their influence on a single issue unless they feel very strongly about it. In the context of DAOs, it means that large holders will have a hard-time pushing through with a proposal if they'll try to do it on their own.

Practical Example

Consider a voter who has been allocated 25 voting credits to spend on several proposals. The voter has varying degrees of interest in three proposals: Proposal A, Proposal B, and Proposal C.

  • Proposal A: High interest.
  • Proposal B: Moderate interest.
  • Proposal C: Low interest.

The voter might allocate their credits as follows:

Proposal A:

  • Votes cast: 3
  • Cost: 9 delegated tokens

Proposal B:

  • Votes cast: 2
  • Cost: 4 delegated tokens

Proposal C:

  • Votes cast: 1
  • Cost: 1 delegated token

Total delegated tokens: 14
Remaining tokens: 11

With the remaining tokens, the voter can choose to allocate additional votes to the proposals based on their preferences or save for future proposals. If they feel particularly strong about Proposal A, they might decide to cast one more vote:

Additional vote on Proposal A:

  • New total votes: 4
  • New cost: 16 delegated tokens
  • Additional cost: 16−9 = 7 delegated tokens

Updated total delegated tokens: 14+7 = 21

Updated remaining tokens: 25−21 = 425 - 21 = 4

This additional vote on Proposal A costs 7 credits, significantly more than the previous vote, illustrating how the quadratic cost discourages excessive influence on a single issue without strong conviction.

Benefits of Implementing Quadratic Voting

Key Characteristics of the Quadratic Cost Function

  • Marginal Cost Increases Linearly: The marginal cost of each additional vote increases linearly. The cost difference between casting n and n−1 votes is 2n−1.
  • Total Cost Increases Quadratically: The total cost to cast multiple votes rises steeply, discouraging voters from concentrating too many votes on a single issue without significant reason.
  • Promotes Egalitarian Voting: Small voters are encouraged to participate, because relatively they have a much higher impact.

Advantages Over Traditional Voting Systems

Quadratic Voting offers several benefits compared to traditional one-person-one-vote systems:

  • Captures Preference Intensity: By allowing voters to express how strongly they feel about an issue, QV leads to outcomes that better reflect the collective welfare.
  • Reduces Majority Domination: The quadratic cost makes it costly for majority groups to overpower minority interests on every issue.
  • Encourages Honest Voting: Voters are incentivized to allocate votes in proportion to their true preferences, reducing manipulation.

By understanding the foundation of Quadratic Voting, stakeholders in Web3 communities can appreciate how this system supports more representative governance.

Conclusion

Quadratic voting is a novel voting system that may be used within DAOs to foster decentralization. The key idea is to make the cost of voting on a certain issue increase quadratically. The leading player that makes use of this mechanism is Optimism. If you're pondering about the design of your DAO, we highly recommend taking a look at their research on quadratic funding.

If you're looking to create a robust governance model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure that your DAO will stand out as a beacon of innovation and resilience in the long term.

Tagi