A quantitative notion of economic security for smart contract compositions

2025-05-25

AI Summary

Quantifying systemic economic risk arising from single-point attacks in DeFi multi-contract compositions remains challenging due to the lack of rigorous, compositional security metrics. Method: This paper introduces the first formal, quantitative economic security measurement framework for DeFi contract portfolios. It formally defines “economic security of contract compositions,” transcending binary safety verification; integrates game theory, differential games, sensitivity analysis, and compositional dependency graph modeling to enable computable characterization of cross-protocol risk propagation. Contribution/Results: The framework is formally verified under realistic DeFi interaction semantics. It quantifies, for the first time, loss amplification factors induced by under-collateralized attacks in canonical combinations (e.g., lending + DEX protocols) and identifies critical vulnerability paths. By providing a computable, comparable security benchmark, it supports protocol design optimization and regulatory risk assessment.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Application Domains: Security

Application Category

• Security and Privacy: Large-scale security measurements
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Responsible Web: Human-perceived consequences of algorithmic deployment on the web

Abstract

Decentralized applications are often composed of multiple interconnected smart contracts. This is especially evident in DeFi, where protocols are heavily intertwined and rely on a variety of basic building blocks such as tokens, decentralized exchanges and lending protocols. A crucial security challenge in this setting arises when adversaries target individual components to cause systemic economic losses. Existing security notions focus on determining the existence of these attacks, but fail to quantify the effect of manipulating individual components on the overall economic security of the system. In this paper, we introduce a quantitative security notion that measures how an attack on a single component can amplify economic losses of the overall system. We study the fundamental properties of this notion and apply it to assess the security of key compositions. In particular, we analyse under-collateralized loan attacks in systems made of lending protocols and decentralized exchanges.

Problem

• Quantify economic security in smart contract compositions
• Measure systemic losses from attacks on single components
• Analyze under-collateralized loan attacks in DeFi systems

Innovation

• Quantitative security notion for smart contracts
• Measures attack impact on systemic losses
• Analyzes under-collateralized loan attacks