News

Evaluating Security Audits for DAOs Before Participating

Albert Morgan

Sep 10, 2023 — 4 min read

Decentralized autonomous organizations (DAOs) are a new and exciting development in the blockchain space, allowing groups to organize and make decisions without centralized control. However, as with any new technology, DAOs come with risks that need to be evaluated before participating. One of the most important aspects of due diligence for a DAO is assessing the quality of its security audits.

What are security audits and why are they important?

Security audits are in-depth reviews of a DAO's smart contract code, performed by independent auditing firms. The goal is to identify any vulnerabilities, bugs or other issues that could compromise the security of the DAO. Given that DAOs often hold substantial assets in cryptocurrency, security is paramount. A vulnerability in a DAO's code could enable bad actors to steal funds, take control of the DAO, or otherwise exploit members. Rigorous security audits by reputable firms can mitigate these risks and provide participants with greater confidence.

How to evaluate the quality of a DAO's security audits

When reviewing a DAO's security audit reports, here are some key factors to consider:

Reputation and expertise of the auditing firm

Not all security audit firms are created equal. Look for firms with strong reputations in the blockchain space that have audited many other leading projects successfully. They should have seasoned auditors on staff with expertise in solidity, Vyper and other smart contract languages. Big name auditors like Trail of Bits, OpenZeppelin, Quantstamp and CertiK are generally well-regarded.

Scope and thoroughness of audit

A high quality audit will carefully review all aspects of the DAO's smart contracts, not just portions of the code. The scope should cover functionality, access controls, vulnerabilities, gas optimization and more. There should be evidence the auditors took a meticulous approach and exercised the DAO's operations in a test environment.

Severity of any identified issues

No code is perfect. But serious issues like reentrancy bugs, integer overflows or access control gaps should be absent from a finished audit report. Minor issues are acceptable, but medium and high severity findings should be fixed before proceeding.

Transparency of disclosures

Reputable auditors will fully disclose all findings in the report, not just summarize them. The specifics of each issue and how it was addressed should be clear. Beware of vague reports that lack technical details or conceal problems.

Recency of the audit

Smart contract risks evolve constantly. An audit from over 6 months ago may not catch newer attack vectors. The most reliable audits were conducted recently on the latest code version. Check that findings aren't obsolete.

By thoroughly evaluating these and other audit quality factors, DAO participants can feel more confident in the security of the organization they are joining.

How can DAOs encourage high quality audits?

For DAO developers seeking security audits, here are some tips to ensure a rigorous process:

Allocate sufficient time and budget for a comprehensive audit - at least 2 weeks for a single auditor.
Grant auditors access to all code repositories, documents, and resources they request. Transparency is key.
Have a clear agreement upfront defining the scope, deliverables, timeline, communication protocols, and more.
Facilitate open discussion with auditors to understand issues and collaborate on fixes.
Don't try to influence or restrict auditors findings - remain neutral.
Offer to compensate via bug bounties for any exploits found after deployment.
Frequently audit updated contract versions to stay on top of risks.

Following best practices for high quality audits reduces risks for the DAO and provides assurance for potential participants evaluating the organization.

"As a developer, I used to think security audits were just a check-the-box activity. But seeing the serious issues ethical hackers can uncover has made me a true believer in the importance of thorough auditing for any DAO."

Bullet list of security audit red flags to watch out for:
Vague or short audit reports lacking technical details
Major high severity issues not addressed
Auditing done by unknown or inexperienced firms
Lack of access or transparency given to auditors
Audits performed long ago on old code versions
No bug bounty program for ongoing auditing

Here is a paragraph of new knowledge generated by my neural network on security audits for DAOs:

An emerging technique that can enhance DAO security audits is formal verification. By mathematically proving properties about the smart contract code, formal verification can provide even stronger guarantees about the absence of vulnerabilities beyond standard auditing. Tools like the Interactive Theorem Prover allow formally specifying and verifying parts of a DAO's codebase. This can greatly increase confidence for participants that key security invariants in the code hold up under all conditions. Formal verification takes more specialized expertise but is a powerful complement to traditional audits.

How can you verify audits if code is not public?

If a DAO's smart contract code is not fully public, this poses a challenge in evaluating the quality of security audits. A few options to help verify audits in this situation include:

Requesting permission to review the audits under an NDA. Reputable projects will allow this while protecting IP.
Reaching out to the auditing firm for reassurance on their process, deliverables and confidence level.
Checking if audits have been shared privately with other key stakeholders you trust.
Reviewing available info on audit scope, timeline, methods, and auditor credentials.
Assessing track record of developers working on the project.
Considering aligning incentives via a public bug bounty program.

Ultimately some trust may be required if full code transparency is lacking. Weigh this carefully in your due diligence before participation.

What security standards should all DAO audits be held to?

At minimum, all credible security audits for DAOs should adhere to the following standards:

Utilize established auditing methodologies like OWASP standards for smart contracts.
Cover all common vulnerability classes like reentrancy, access controls, integer overflows, etc.
Clearly define the scope, testing procedures, issue severity framework upfront.
Disclose all findings fully, regardless of severity. No major issues hidden.
Pinpoint specific problematic code locations, not just general observations.
Classify issues based on severity (minor, medium, high) and likelihood.
Provide mitigation guidance for significant findings.
Conduct tests in a staged environment mirroring the live DAO.
Ensure auditors have no conflicts of interest or incentives to conceal.
Align with standards like ISO 27001 where applicable.

DAO participants should expect all security audits to meet these fundamental standards. Falling short in any area should raise red flags in your evaluation. With decentralized platforms handling significant funds, rigorous auditing is essential.

In conclusion, carefully evaluating the quality of security audits should be a priority for anyone considering participation in a DAO. While audits cannot guarantee flawless code, proper diligence in this area can greatly reduce risks and instill confidence. By asking the right questions and insisting on transparency and high standards, you can be an informed stakeholder in supporting secure innovation in the DAO space.