In the early 2020s, the decentralized finance (DeFi) space saw the flourishing of new incentive mechanisms like liquidity mining and airdrops; however, this growth also brought an increase in hacks and exploits, posing significant challenges for projects to secure affordable and effective audits.

That's when the founders of Hats Finance, a community-focused onchain audit platform, saw an opportunity to leverage these incentive mechanisms to create a decentralized and cost-efficient solution for Web3 security.

"The mission of Hats is to align incentives for everyone," Hats Finance founder Oliver Hörr told Cointelegraph.

Hörr discusses his vision for Web3 security in this interview, as well as how Hats Finance, a Cointelegraph Accelerator participant, could help to realize it.

What is your opinion on Web3 security at this point? Does security have the proper place in the Web3 ecosystem?

Oliver Hörr Web3 security is developing gradually. Entrepreneurs are beginning to realize that a single incidence that causes harm to their consumers could spell the end for their business. We witnessed significant problems in 2021 when projects choose to launch unaudited code after failing to source audits, which undoubtedly had unfavorable effects.

Because of our decentralized security (DeSec) strategy, which allows anybody in the globe to access proof, teams increasingly recognize the importance of security, and we have more and better people in the audit sector.

CT: One of the main tenets of Web3, which is not yet entirely onchain, is security. How would Hats Finance incorporate more security features into blockchain technology?

OH: All of our bug bounties, audit competitions, and their outcomes are now stored on chain. Users can utilize Hats to view the onchain data and determine whether a specific smart contract is audited or protected by a bug bounty. Additionally, we participate in a project to use EIP-7512 to standardize this procedure. This would greatly benefit users who want to explore Web3 in a safer manner by enabling wallets to allow users to choose how risk-averse or secure they want to be.

Imagine interacting with a smart contract that hasn't been sufficiently evaluated and receiving a warning if you do. The user would be able to make more informed selections as a result.

CT: How does Hats Finance plan to address the high costs and inefficiencies of typical security audits?

OH: Our platform allows anybody globally to participate in the audit, and only the successful experts are compensated, as opposed to pre-booking two or three security experts to examine a smart contract. Because these audit businesses have enormous overhead for marketing and distribution, audits are costly. The auditors just need to concentrate on one thing when using our platform: identifying vulnerabilities. As a result, overhead is decreased and prices can fall to a reasonable level.

CT: Could you describe your rewards-only payment model's structure and the ways in which it helps protocols that are looking for audits?

OH: At Hats, the only fees we impose are on prizes for submissions that are accepted. Consequently, the client has no restrictions on the competition if no vulnerabilities have been found. This is a significant benefit for the client because it frequently occurs that after paying a large sum of money for an audit, the client learns that the auditor was unable to deliver any value.

It is always possible to receive a team of junior auditors or an auditor having a terrible day, even when you source an audit from the top businesses in the field. We are resolving this problem.

CT: How can unrestricted participation in audit contests improve security reviews and widen the skill pool?

OH: We have a sizable community in India and South America. Since everything is peer-to-peer, we frequently have no idea who actually submitted the problem. There is always a flood of fresh talent entering the security industry, but they cannot just walk into an audit firm and start working there. Many up-and-coming stars openly share their built-reputations on social media, thanks to our platform.

We even don't ask anyone to register before accessing the contents, giving security researchers who are new or may not like to register for a platform for a variety of reasons total flexibility and accessibility.

CT: How does Hats Finance help to enable community involvement in Web3 security, and why is it important?

OH: Ironically, given the community is the one most impacted by these attacks, it is incorrect that they are frequently excluded from security conversations. They can control the security infrastructure of the future with Hats, making the projects they work on more secure. In our vision of DeSec, the community will be able to participate in the decision-making process over which security measures to support in a fully transparent manner. They will also be able to take advantage of the rapid growth environment and economic potential of web3 security and Hats. That is, in our opinion, lovely.

The community needs to have more access to security information and be empowered to make changes.

CT: What goals do you have for Hats Finance going forward, and what benchmarks are you hoping to hit?

Oh: There will be a lot of security-related problems with Web3. Subsequently, we aim to concentrate on providing onchain security and artificial intelligence (AI) safety for smart wallets. Though we think AI is one of the best things that has ever happened to humanity, there are still a lot of hazards if the community is not equipped to monitor AI and ensure that it is safe to use. We have the ideal decentralized infrastructure to reduce such risks.

In conclusion, the primary UX problems with Web3 can potentially be resolved by smart wallets. They can be hacked, though, just like any other smart contract. Our goal is to address those security issues so that Web3 can break through this significant user experience barrier and become widely used.

Our aim to decentralize our protocol and involve the community in shaping the regulations and economic flywheel of Hats is the most pressing milestone.