Bug Bounty Proposal by Hats Finance



# Summary

The direct losses from hacks and exploits between 2020-2022 are above $15B, and yet, the solutions currently being offered are not decentralized, permissionless, scalable, and continuous like Frax Finance is.

This is a proposal for Frax Finance to collaborate with Hats.finance to create an on-chain, free, non-custodial, scalable and permissionless incentives pool for hackers/auditors to protect the Frax Finance smart contracts. The goal of the vault is to incentivize responsible vulnerability disclosure for Frax Finance. Liquidity can be added (with $FRAX and/or yield-bearing tokens) permissionless and LPs will be rewarded with $HAT tokens once the liquidity mining program is launched.

# Background & Motivation

Hats.finance is a on-chain decentralized bug bounty platform specifically designed to prevent crypto-hack incidents by offering the right incentives. Additionally, Hats.finance allows anyone to add liquidity to a smart bug bounty. Hackers can disclose vulnerabilities responsibly without KYC & be rewarded with scalable prizes & NFTs for their work.

Smart bug bounty programs are a win-win for everyone. They can be created easily with a few on-chain transactions (it takes less than 1 hour to set up a vault on Hats), and are free of charge. Hats will only charge a fee once an incident has been successfully mitigated. The protocol will retain 10% of the payout as fee from the security researcher. Scenarios of an exploit are way more costly and can cause irreversible damage. More importantly, the bounty program is transparent, decentralized, and gives power to the community of the project.

On-chain submission:

With the values of Ethereum, which are lighting our way, we decided to take a different approach to bug bounty compared to the traditional and centralized bug bounty platforms.

The submitter writes a detailed vulnerability description on Hats dApp. The submission is encrypted with the project PGP key. The user hashes the encrypted description (Automatically) and sends a transaction on-chain with that Hash (only the Hash of the encrypted report is going on-chain), While sending the encrypted message to the routing bot.

The tx fee acts as a spam filter and can be set to a higher value (In the future).

The routing bot verifies that the Hash of the encrypted message was published on-chain and publishes the encrypted message to the committee group together with a link to a front-end open source tool to decrypt the messages that are stored on IPFS that is part of Hats dapp.

The key advantage of Hats solution compared to traditional, centralized bug bounty services:

  • Bug bounty vaults are loaded with the native or yield bearing token of each project. Reducing the free floating supply while giving the token additional utility.
  • Scalable bounty network β€” vault TVL increases with success / token appreciation of the project.
  • Open & Permissionless β€” Anyone can participate in the protection of an asset they are a stakeholder of and any hacker, anywhere in the world, can participate anonymously when disclosing exploits (no KYC needed)
  • In the future when providing liquidity(taking risk) every depositor could earn $HATS tokens.
  • Continuous β€” As long as tokens are locked in the vault, hackers are incentivized to disclose vulnerabilities through Hats, instead of exploiting the project.

Additional advantages of deployment of the existing Frax Finance bug bounty program on Hats Protocol:

  • Frax DAO can reach out to many more security researchers (aka white hat hackers) with a bounty on Hats protocol and each scrutiny will make Frax Finance safer.
  • Frax DAO can fund the bug bounty vault on Hats with its own native token ($FRAX or yield bearing token)
  • The bounty reward for the submitter is not paid at once to reduce the price pressure on the project token.
  • Since Frax DAO will be farming $HAT tokens with its bounty, it’s a cost negative opportunity for Frax Finance.

# Next Steps

In case that the proposal gets accepted, Frax Finance DAO is expected to:

1- Choose and set up a committee

2- Vote on the amount the DAO will contribute to the bug bounty program (How much $FRAX or yield bearing assets to be used from the treasury for the initial deposit)

Onboarding action items:

  • Choosing a committee: The committee is preferably the public multisig contract of Frax Finance or a multisig specifically set up to manage the bounty program.

The Committees responsibility:

  • Triage incoming vulnerability reports/claims from auditors/hackers (get back to the reporter within 12 hours).
  • Approve claims within a reasonable time frame (Max. of 6 days)
  • Set up repositories and contracts under review. (A list of all contracts covered by the bounty program separated by severity)

Concluding Remarks

At Hats.finance, we envision a future in which a security marketplace acts as permissionless infrastructure for the crypto ecosystem. Considering how much Frax Finance cares about the security of the network and its operations, it is beyond any doubt that a bounty on Hats.finance will draw more attention from the white hat hackers and auditors to the smart contracts of Frax Finance. Accordingly, each scrutiny will contribute to the safety and security of Frax Finance.

Project links:

Hats Audit


  • FOR: Create a bug bounty vault on Hats Protocol and deposit the DAO determined amount as an initial deposit for the vault to be open to community deposit
  • Against: Do nothing

Hey everyone, I’m the Hats head of growth.
Great to see the proposal here.

Hacks are still one of the biggest roadblocks toward big adoption. Users that once got burned will lose trust in this revolution we are building.

Smart bug bounty programs are a win-win for everyone. They can be created easily with a few on-chain transactions, and do not cost anything unless there a vulnerability is discovered, which would be more costly and irreversible once exploited. More importantly, it is transparent, decentralized, and gives power to the community behind the project.

I would love to answer questions about Frax <> Hats collaboration, please tag me.

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