The idea of smart contract auditing came about due to the increase in security issues surrounding the contracts. Smart contracts are susceptible to hackings, phishing attacks, and manipulations. However, security auditors can explore the contract, identify any issues and report them.
Today, there are dozens of smart contract auditors available. It may be hard for developers to identify the right auditor. A class of cheap auditors offers poor services and does not go in-depth into the code. Instead, they focus on the basics and provide their reports.
However, this guide looks into six reasons why developers need the help of quality auditors when launching Defi projects.
Advice on the Taxing System
The taxing system in the case of smart contracts is the fee charged and their planned uses. Taxes are fees involved when buying(buy tax) or selling(sell tax) tokens. The taxing system helps ensure the project is sustainable in the long term.
But, the creation of an effective taxing system requires some coding. If not coded properly, the racing system may fail. Some projects have had to change taxes after launch because of issues with the taxing system.
A good auditor must give proper advice around the taxing system's viability and sustainability. If they notice problems, they will immediately advise the developers. They can tell developers if the tax is sustainable. A good auditor will offer solutions.
Auditors Help Prevent Rug Pulls
A rug pull is a scam where developers pump a project then run with investors' funds. Rug pulls have been quite prevalent in the crypto space, especially in 2021. Most rug pulls occur in a short period. However, there is another type of pull called the slow rug pull.
A slow rug pull occurs when the code allows developers to drain funds from the contract slowly. A slow rug pull can go for a very lengthy period, probably years. Developers are the primary creators of a slow rug pull. They code the system to withdraw small amounts for a long time. That's where the auditor comes in.
Auditing, however, can help assure investors of the security of their funds. The auditor will ensure that the code does not give any opportunity for committing a rug pull. Auditing will certify that the contract is genuine and will not slowly lock access to investors' funds. In case of any contract issues, the auditor will inform the public of the malicious acts in the report.
Holders Analysis
Holders analysis is a process that allows the project runners to identify the level of communication the stakeholders of the projects must receive. The communication information should essentially be relative to the holder's interest.
Project auditors could do holders' analyses. By having proper holders analysis, developers will understand how governance should be distributed in the project.
Renouncing Contract Ownership
Auditors can also have an immense impact on issues concerning contract ownership. In most cases, developers and project founders may have complete control over the project. They control the project by owning most tokens and controlling all governance decisions.
However, to foster decentralization, ownership of the project should be left to the community. A good auditor can offer advice on how to renounce their ownership.
Liquidity Locking and Vesting
A good auditor should advise on liquidity locking and vesting options for the project. Liquidity locking to make some tokens unusable for a fixed period. Mostly, the funds locked are team or developers funds. Lockers use a system called vesting to release the tokens. Vesting sets the structure for releasing the team and other locked tokens.
Auditors will look into your project and advise on the best locking and vesting solutions. The developers must listen to the auditor's advice on the same.
Audit Reports are Necessary for Most Launchpads
As a crypto project developer, it's vital to know that audits are required in most launchpads. Launchpads are platforms allowing crypto projects to sell their tokens to the community. They can be;
Presale. It's a type of token sale which involves selling tokens to the investors. The launchpad, developers, and other stakeholders may get early token access.
Fair launches. It's a type of token sale where no one gets early access to the token. Hence, every investor gains access at the same price.
The launchpads require a contract audit report to protect investors. They want to see the report before investing. Hence, developers must take an audit to ensure the success of their presales.
Examples of audit platforms that project developers frequently seek currently include Certik, ConsenSys, PwC, and Solidproof. They offer in-depth code scanning aimed at investors’ best interest and protection.
Final Word
While cheap smart contract auditors can quickly complete their tasks, they do not do thorough scanning. However, quality auditors look into various aspects of the project. Among the aspects include the taxing system, contract ownership, holders analysis, locking, and vesting options. All those aspects are vital to the success and long-term project sustainability.