The post Understanding the pros and cons of smart contract upgradeability in DeFi appeared on BitcoinEthereumNews.com.

Smart contract proxy upgradeability allows developers to update the logic of deployed smart contracts while preserving the contract’s state and address. This provides flexibility to fix bugs or add features but also introduces potential risks. Smart contracts, self-executing agreements on blockchain networks, traditionally operate as immutable code once deployed. This immutability is a cornerstone of trust in blockchain technology, ensuring that contract terms cannot be altered unilaterally. However, the inability to modify contracts post-deployment can pose challenges, mainly when bugs are discovered or improvements become necessary. Proxy-upgradeability in smart contracts Proxy-upgradeability addresses this limitation by introducing a two-contract system. A proxy contract stores the state and holds user funds, while a separate logic contract contains the actual functionality. The proxy delegates function calls to the logic contract, which can be replaced with an upgraded version without changing the proxy’s address or disturbing stored data. This approach offers significant advantages. Developers can patch vulnerabilities, implement new features, and optimize performance without disrupting user interactions or requiring fund migration. Major DeFi protocols, including Compound, Aave, and Uniswap V3, have adopted upgradeable contracts, leveraging this flexibility to enhance their platforms over time while establishing themselves as relatively trustworthy entities through a combination of rigorous security measures and transparent operations. These protocols have implemented comprehensive security practices, including thorough audits, formal verifications, and ongoing bug bounty programs. Their smart contracts are open-source, allowing for public scrutiny and verification of functionality. Additionally, they have adopted decentralized governance systems where token holders can participate in decision-making, enhancing transparency and reducing the risk of unilateral changes that could harm users. Their established track records further bolster the trustworthiness of these protocols. They have operated successfully for significant periods and managed billions of dollars in assets. They consistently update and improve their systems based on community feedback and…

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Filed under: News - @ July 8, 2024 7:10 pm