Chainlink (LINK), the ticking time bomb that could wipe out DeFi? It sounds the alarm

Close to disaster – The decentralized finance has continued to develop since its emergence at the end of 2019. It offers the concept of composability, which allows protocols to interconnect and multiply returns. However, this can turn out to be a double-edged sword and lead to systemic problems.

Launched in May 2019, the protocol chain link offers a decentralized oracle network. In practice, an oracle is a program that allows smart contracts to obtain data external to blockchains.

For example, Chainlink offers oracles that provide real-time information on the price of a given pair of cryptocurrencies.

A service used by a large number of DeFi protocols across more than 10 different blockchains.

However, this reliance on this single source of data can cause significant systemic issues in the event of a failure.

On Thursday, May 5, Chris Blec sounded the alarm on Twitter regarding a major point of centralization inherent in Chainlink.

Alert tweet posted by Chris Blec – Source: Twitter.

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Thus, Chris Blec pointed out the presence of a admin key on all Chainlink services.

Indeed, all Chainlink contracts are administered by a so-called multisignature key 3 out of 20. In practice, this means that this administration key is divided into 20 subkeys where only 3 of the 20 keys are needed to sign a transaction.

Therefore, all of Chainlink’s contracts can be modified if 3 of these 20 keys are collected by a malicious actor.

“If 3 of these 20 keys are compromised in any way (hacking, regulatory attack, etc.), DeFi could experience an unprecedented black swan and suffer irreversible destruction. »

Imagine the worst. If an attacker were to take control of 3 of the 20 keys, he would be able to alter all Chainlink contracts. A minor change in the price of a pair of cryptocurrencies could thus lead to a liquidation wave.

A more drastic change in the course could lead to a wave of liquidation such that all of DeFi would be in jeopardy. Indeed, the composable aspect of the different protocols would cause a fall of dominoes where each protocol causes the protocols to which it is connected in its fall.

It wouldn’t stop at just one blockchain. Indeed, Chainlink is the main oracle of all the blockchains and second layer that host DeFi ecosystems.

Chainlink provides data to many blockchains
List of blockchains on which Chainlink operates.

Faced with this thread and the threat raised by Chris Blec, @ChainLinkGod provided a disappointing response.

In fact, this one do not deny the existence of this administration keywhich however does not appear anywhere in the Chainlink documentation.

Conversely, he explains that the Chainlink network aims to better decentralize in the future, explaining that each data flow is provided by several nodes with security mechanisms allowing it to fall back to other nodes. in case of problems.

A ray of hope at the end of the tunnel

All is not lost for DeFi, however. Indeed, solutions exist to add a second level of security to the data retrieved by DeFi applications.

Thus, Chris Blec presents the case of Liquidity Protocol. Like the rest of DeFi, Liquidity Protocol uses data from Chainlink. However, this is also connected to the decentralized oracle of WeAreTellor.

Therefore, if Chainlink were to encounter a problem, the protocol would automatically transition to WeAreTellor’s oracle source. This allows it to be resilient in the event that Chainlink’s keys were to be compromised.

Anyway, this solution is not perfect. However, it presents a way to mitigate the DeFi ecosystem’s dependence on Chainlink’s services.

Security is a central component that is unfortunately too often overlooked in DeFi. Thus, since the beginning of 2022, $1.6 billion was stolen in hacks targeting DeFi protocols.

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