Smart Contracts and DeFi Investigations Flashcards

What does MEV (Maximal Extractable Value) refer to in blockchain?

Answer: Profit extracted by validators by reordering, inserting, or censoring transactions within blocks

MEV refers to the maximum value that can be extracted from block production by including, excluding, or reordering transactions within blocks, often at the expense of regular users.

What is a blockchain bridge and why is it significant for cryptocurrency investigations?

Answer: A protocol enabling asset transfers between different blockchains, creating cross-chain tracing gaps

Blockchain bridges enable asset transfers between different blockchain networks, creating investigative challenges because funds effectively disappear on one chain and reappear on another with a different transaction history.

In blockchain, what is an oracle and what risk does it pose for DeFi protocols?

Answer: A service that provides external real-world data to smart contracts, which can be manipulated

Blockchain oracles are third-party services that supply external data to smart contracts; oracle manipulation attacks occur when adversaries corrupt the data feed to exploit the smart contracts that rely on it for decision-making.

What is a DAO (Decentralized Autonomous Organization) and how can it be relevant to cryptocurrency investigations?

Answer: An organization governed by smart contracts and token-holder votes, which can be exploited for financial crimes

A DAO is an entity encoded in smart contracts where decisions are made by token holders; DAOs have been involved in investigations involving treasury manipulation, governance attacks, and using governance votes to legitimize fund movements.

What is front-running in the context of DeFi transactions?

Answer: Inserting a transaction ahead of a known pending transaction by paying higher gas fees to profit from anticipated price impact

Front-running in DeFi involves placing a transaction ahead of a known pending transaction by paying higher gas fees, allowing the attacker to profit from the price movement caused by the victim's larger transaction.

Why is smart contract bytecode analysis important for cryptocurrency investigators?

Answer: Bytecode reveals deployed code logic and functionality even when human-readable source code is not publicly verified

Analyzing smart contract bytecode allows investigators to reverse-engineer contract logic and identify functions even when the source code has not been publicly verified on explorers like Etherscan.

What is a wrapped token (e.g., WBTC) in cryptocurrency, and why is it relevant to investigations?

Answer: A token pegged to another cryptocurrency and usable on a different blockchain, enabling cross-chain fund movement

Wrapped tokens represent another cryptocurrency on a different blockchain (e.g., WBTC represents Bitcoin on Ethereum), enabling cross-chain asset movement that creates additional tracing complexity for investigators following funds.