# Formal Analysis of Composable DeFi Protocols

**Authors:** Palina Tolmach, Yi Li, Shang-Wei Lin, Yang Liu  
**arXiv:** [2103.00540](https://arxiv.org/abs/2103.00540)  
**Date:** 2021-02-28  
**Summary page:** https://www.summarizepaper.com/en/paper/2103.00540v2/

## Key points

- DeFi is a successful application of blockchain and smart contracts
- Smart contracts in the DeFi ecosystem often contain bugs and vulnerabilities
- This paper proposes a formal process-algebraic technique for modeling DeFi protocols
- The technique allows for efficient property verification
- The authors demonstrate their approach through a case study analyzing the composition of Curve and Compound protocols
- Potential issues and vulnerabilities are identified within the combined protocol using the formal modeling technique
- The approach can be used to analyze other financial and security properties within the DeFi ecosystem
- The research contributes to improving the security and reliability of DeFi protocols by providing a formal method for analyzing their composition

## Summary

Decentralized finance (DeFi) has emerged as a highly successful application of blockchain and smart contracts, enabling a wide range of crypto-financial activities. However, the underlying smart contracts in the DeFi ecosystem often contain bugs and vulnerabilities that arise from the unforeseen consequences of combining different DeFi protocols. In order to address this issue, this paper proposes a formal process-algebraic technique for modeling DeFi protocols in a compositional manner, allowing for efficient property verification. The authors demonstrate their approach through a case study that analyzes the composition of two interacting DeFi protocols: Curve and Compound. By applying their formal modeling technique, they are able to identify potential issues and vulnerabilities within the combined protocol. This case study serves as evidence of the effectiveness of their proposed approach in analyzing and assessing the security and financial properties of composed DeFi protocols. Furthermore, the authors discuss how their modeling and verification approach can be utilized to analyze other financial and security properties of interest within the DeFi ecosystem. This suggests that their technique has broader applicability beyond just the specific case study conducted in this paper. Overall, this research contributes to improving the security and reliability of DeFi protocols by providing a formal method for analyzing their composition. By identifying potential vulnerabilities early on, developers can take proactive measures to mitigate risks and ensure the robustness of decentralized financial systems built on blockchain technology.