Auditing Decentralized Finance (DeFi) Protocols

59 Pages Posted: 25 May 2023

See all articles by Daniel Rabetti

Daniel Rabetti

National University of Singapore (NUS)

Date Written: May 18, 2023

Abstract

The collapse of FTX has underscored the critical importance of auditing, especially in the fast-growing decentralized finance (DeFi) markets. Due to the decentralized nature of DeFi platforms, which facilitate peer-to-peer transactions without intermediaries, and the rapid pace of innovation in the unregulated and highly asymmetric information environment of the DeFi market, traditional financial auditing methods face significant hurdles. This study explores the relevance of auditing in DeFi protocols and highlights its critical role in ensuring transparency, security, and trust within these decentralized systems. Through a comprehensive analysis of the unique characteristics of DeFi, including smart contracts and blockchain technology, we delve into the specific challenges and risks associated with auditing DeFi applications. Furthermore, the article discusses the demand for robust auditing practices, regulatory oversight, and industry standards to enhance resilience and stability in this fast-growing emerging market.

Keywords: DeFi protocols, auditing, smart contracts, blockchain, financial innovation, regulation

JEL Classification: G15, G18, G29, K29, K42, O16

Suggested Citation

Rabetti, Daniel, Auditing Decentralized Finance (DeFi) Protocols (May 18, 2023). Available at SSRN: https://ssrn.com/abstract=4458298 or http://dx.doi.org/10.2139/ssrn.4458298

Daniel Rabetti (Contact Author)

National University of Singapore (NUS) ( email )

1E Kent Ridge Road
NUHS Tower Block Level 7
Singapore, 119228
Singapore

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