Smart contrat risk

Since the smart contrat is open, everyone can read it. That also means everyone can attack its weak points.

There are 2 main types of exploits:

• Logic Exploits:

  It's caused by the error in the smart contrat codes.

  An example of a smart contract logic error is rounding.

  Suppose the contract has 3.9999999999990 ETH and the payout is rounded to 4 ETH. The transaction will fail because the contract does not have 4 ETH.

  In DeFi ecosystem, there are DAO to audit smart contrats to prevent this type of exploits.

• Economic Exploits:

  It's the most common error. The attacks use the different asset prices on different platforms to make money, similar to arbitrage. (e.g. flash attack)

  

  An example of an economic exploit is the exchange between two tokens when the price is linked via an oracle to an illiquid exchange. The exploiter can attack the oracle exchange and manipulate the price.

• Rug pull:

  The original developers (the major token owners) sell everything when the price of the token is high. This action will cause the price dropping near to zero.