A significant portion of the largest tokens by volume faces substantial governance risks, lacking adherence to best practices aimed at mitigating exploits and security threats.
According to De.Fi, an analysis of 429 tokens with governance frameworks reveals that nearly 75% exhibit risk factors within their contracts, such as hidden owners and wallets with special permissions.
Only 16.6% of the examined contracts utilize multisig wallets, requiring approval from multiple private keys for transactions. This mechanism is recognized as a tool to mitigate phishing and malware-based hacking risks.
Over 38% of token contracts are managed by a single wallet or externally owned account, granting the wallet significant control over contract functions. The degree of risk varies based on permissions granted, with some wallets capable of altering critical contract addresses, posing direct threats to user assets.
Another concern highlighted in 6.8% of contracts is hidden ownership, enabling the contract creator to revoke ownership and veto votes, potentially leading to misuse and exploitation.
Only 10% of tokens have renounced contracts, indicating creators have relinquished their ability to modify code or governance features, thereby promoting decentralization.
De.Fi’s Rekt database documents significant losses due to governance hacks, with the top three incidents resulting in $414 million in losses. These include exploits such as flash loan attacks and smart contract vulnerabilities.
While governance parameters may signal potential risks, not all instances lead to security breaches. Many companies with governance tokens employ robust security practices, though not always publicly visible or on-chain.
Approximately 14% of contracts lack governance mechanisms entirely or fail to disclose them, underscoring the need for transparency and accountability in token governance.
Overall, addressing these governance risks is crucial to ensure the security and integrity of token ecosystems.
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