Ensure Smart Contract Success with These Expert Audit Tips

Paulina Lewandowska

03 Jan 2023
Ensure Smart Contract Success with These Expert Audit Tips

The use of smart contracts, a tool that enables the automation of several processes and transactions, has grown significantly in the realm of blockchain technology. Before these smart contracts are implemented, it is crucial to guarantee their security and dependability. Smart contract auditing is useful in this situation.

The finest advice and methods for auditing smart contracts, as provided by seasoned smart contract developers, will be covered in this article. You may make sure that your smart contracts are of the greatest caliber and without flaws by adhering to these suggestions.

We hope that this article will provide valuable insights and guidance for those looking to audit their smart contracts effectively.

Understand the purpose and functionality of the contract

Before performing an audit, it is crucial to comprehend the function and intended use of a smart contract. This will enable you to find any potential problems or weaknesses and make sure the contract is functioning as planned.

The following points should be taken into account when figuring out the function and goal of a smart contract:

  1. Who will use the contract, and what are their needs and objectives? Identify the stakeholders.
  2. Establish the business logic: What is the contract meant to accomplish? What are the parameters for the input and output, and how should the contract handle various circumstances?
  3. Recognize the environment: How will the contract be used in that environment? What are the limitations and restrictions of the blockchain platform that will be used for its deployment?
  4. Take into account the long-term effects of the contract: How will the agreement be used going forward? Will it ever require updating or changing, and if so, how will those changes be handled?

You may more easily spot possible problems and make sure the contract is appropriate for its intended use by fully comprehending the function and purpose of a smart contract.

Review the code

Understanding the function and intended use of the contract is crucial when conducting a smart contract audit. This will enable you to find any potential problems or weaknesses and make sure the contract is functioning as planned. A static code analysis tool can be used to evaluate the code and help find potential problems including grammatical mistakes, bugs, and security vulnerabilities. It's also critical to adhere to best practices for developing smart contracts, such as making use of secure libraries, managing exceptions correctly, and carrying out appropriate testing and error management. You should also look for widespread security flaws like uninitialized variables, reentrancy attacks, and unsafe random number generation. Additionally, it's critical to ensure that the code is well-written, simple to comprehend, and maintained, as well as that the contract's logic is right and that it appropriately addresses all potential cases. You can see any problems and make sure the contract is secure and error-free by carefully going over the code.

Test the smart contract

A smart contract must be extensively examined during testing to make sure it works as planned and has no unforeseen repercussions. For this, you need to:

  1. Create test cases that account for all edge situations and potential eventualities. This will make sure that every possible problem is found and that the contract is thoroughly tested.
  2. Automate the testing procedure using a testing framework like Ganache or Truffle. As a result, running test cases and monitoring the outcomes will be simpler.
  3. Utilize tools like Mythril or Oyente to scan for common security flaws. By doing this, you can make that the contract is safe and has no weaknesses that could be used against it.
  4. Verify that the contract operates as planned and generates the desired outcomes. This will support the idea that the contract is operating properly.
  5. Verify that the contract is optimized for gas utilization and free of extra code that can drive up gas prices. This will help to guarantee the contract's effectiveness and economy.

Check for correctness

A crucial step in the audit process is verifying a smart contract's accuracy. Verifying that a contract accomplishes its goals and complies with the contract owner's specifications is part of ensuring its validity. You must first analyze the contract's details and comprehend the conditions and limitations in order to verify that everything is correct. You can use this to find any potential problems or places that require more investigation.

The next step is to check the code for flaws or faults to make sure it follows the contract's logic. This will make it easier to verify that the contract's logic is sound and that it appropriately accounts for all potential outcomes.

It is crucial to confirm that the contract complies with applicable rules and regulations if it will be utilized in a regulated environment. This can entail consulting a legal expert or doing more investigation to verify compliance.

You can make sure the contract is appropriate for its intended use and has no unintended consequences by carefully checking for accuracy. This is crucial to ensuring that the contract operates correctly and meets its intended goals.

Check for efficiency

You should make sure the contract is optimized for gas usage and free of any extraneous code that can raise gas prices in order to verify for efficiency. This could lower the cost of using the contract and increase its usefulness for users.

You should study the contract's code to verify for efficiency and search for any places where gas utilization could be maximized. To reduce gas consumption, this may entail eliminating pointless code or improving certain operations. Additionally, you should test the contract to gauge its gas consumption and make sure it is within acceptable bounds.

Checking for backward compatibility

Checking for backward compatibility is also important if the contract is intended to be used on a specific blockchain platform. To check for backward compatibility, you should ensure that the contract is compatible with the version of the platform it will be deployed on. This may involve reviewing the contract's code to ensure that it uses features and functions that are supported by the platform, and testing the contract to confirm that it functions correctly on the platform.

By checking for efficiency and backward compatibility, you can ensure that the contract is optimized for use and can be deployed smoothly on the intended platform.

Review the contract's dependencies

It is crucial to examine the contract's dependencies during a smart contract audit to make sure that it is utilizing the most recent and safe versions of any external libraries or contracts it depends on. It is vital to ensure that the contract is using the most recent and secure versions because outdated or insecure dependencies can cause flaws or mistakes.

You should first look at the contract's code to find any external libraries or other contracts that it depends on before reviewing the contract's dependencies. The versions of these dependencies should then be checked to make sure they are current and secure. You should suggest updating the contract's dependencies to the most recent and secure versions if you discover that they are out-of-date or unsafe.

Checking the dependencies that the contract is using for any vulnerabilities or known problems is also a smart idea. Researching the dependencies and looking for any security advisories or other warnings will help you achieve this. You can contribute to making sure that the contract is as secure as possible by going over the dependencies in this manner.

Overall, a critical stage in the smart contract audit process is carefully analyzing the contract's dependencies. By doing so, you can lower the possibility that the contract contains flaws or inaccuracies and increase its security.

Review the contract's deployment and ownership

To make sure that a smart contract is secure and that only authorized parties can make modifications to it, it is required to review the deployment and ownership of the contract during an audit. This makes it more difficult for someone to gain access or modify the contract.

You must first determine who the contract's owner is and how it was used before you can analyze the contract's ownership and deployment. The contract should then be owned and deployed securely, utilizing best practices like a secure key management system and adhering to appropriate security protocols.

Additionally, make sure that only those with permission can alter the contract. This can entail checking the permissions and access controls of the contract to make sure that only parties with the proper authorization can change it.

In general, examining the contract's deployment and ownership is an important step in the process of a smart contract audit. In order to avoid unauthorized access or contract tampering, it can assist ensure that the contract is secure and that only authorized parties are able to make changes to it.

Additionally, make sure that only those with permission can alter the contract. This can entail checking the permissions and access controls of the contract to make sure that only parties with the proper authorization can change it.

In general, examining the contract's deployment and ownership is an important step in the process of a smart contract audit. In order to avoid unauthorized access or contract tampering, it can assist ensure that the contract is secure and that only authorized parties are able to make changes to it.

It is advisable to consult a legal expert to ensure that the contract is enforceable if it is meant to have legal ramifications. You can better comprehend the contract's legal ramifications and ensure that it is constructed in a way that makes it enforceable by consulting a legal expert. They can also provide you advice on any further measures that might be required to make sure the contract is legally enforceable.

Overall, a critical stage in the smart contract audit process is taking the contract's legal consequences into account. It can aid in ensuring that the contract complies with all applicable legal requirements and is legally enforceable.


A thorough audit is necessary to make sure a smart contract is trustworthy and safe. As part of a smart contract audit, it is important to thoroughly test the contract to make sure it works as intended and has no unintended consequences. You should also confirm that the contract satisfies the contract owner's requirements, look for efficiency and backward compatibility, review the contract's dependencies, deployment, and ownership, and think about the contract's legal ramifications. These guidelines can help you make sure that a smart contract is trustworthy, safe, and appropriate for its intended use.

Be sure to read our other articles on the subject for more details on smart contract audits. You may gain extra knowledge and best practices for auditing smart contracts from these resources.

Most viewed

Never miss a story

Stay updated about Nextrope news as it happens.

You are subscribed

Applying Game Theory in Token Design

Kajetan Olas

16 Apr 2024
Applying Game Theory in Token Design

Blockchain technology allows for aligning incentives among network participants by rewarding desired behaviors with tokens.
But there is more to it than simply fostering cooperation. Game theory allows for designing incentive-machines that can't be turned-off and resemble artificial life.

Emergent Optimization

Game theory provides a robust framework for analyzing strategic interactions with mathematical models, which is particularly useful in blockchain environments where multiple stakeholders interact within a set of predefined rules. By applying this framework to token systems, developers can design systems that influence the emergent behaviors of network participants. This ensures the stability and effectiveness of the ecosystem.

Bonding Curves

Bonding curves are tool used in token design to manage the relationship between price and token supply predictably. Essentially, a bonding curve is a mathematical curve that defines the price of a token based on its supply. The more tokens that are bought, the higher the price climbs, and vice versa. This model incentivizes early adoption and can help stabilize a token’s economy over time.

For example, a bonding curve could be designed to slow down price increases after certain milestones are reached, thus preventing speculative bubbles and encouraging steadier, more organic growth.

The Case of Bitcoin

Bitcoin’s design incorporates game theory, most notably through its consensus mechanism of proof-of-work (PoW). Its reward function optimizes for security (hashrate) by optimizing for maximum electricity usage. Therefore, optimizing for its legitimate goal of being secure also inadvertently optimizes for corrupting natural environment. Another emergent outcome of PoW is the creation of mining pools, that increase centralization.

The Paperclip Maximizer and the dangers of blockchain economy

What’s the connection between AI from the story and decentralized economies? Blockchain-based incentive systems also can’t be turned off. This means that if we design an incentive system that optimizes towards a wrong objective, we might be unable to change it. Bitcoin critics argue that the PoW consensus mechanism optimizes toward destroying planet Earth.

Layer 2 Solutions

Layer 2 solutions are built on the understanding that the security provided by this core kernel of certainty can be used as an anchor. This anchor then supports additional economic mechanisms that operate off the blockchain, extending the utility of public blockchains like Ethereum. These mechanisms include state channels, sidechains, or plasma, each offering a way to conduct transactions off-chain while still being able to refer back to the anchored security of the main chain if necessary.

Conceptual Example of State Channels

State channels allow participants to perform numerous transactions off-chain, with the blockchain serving as a backstop in case of disputes or malfeasance.

Consider two players, Alice and Bob, who want to play a game of tic-tac-toe with stakes in Ethereum. The naive approach would be to interact directly with a smart contract for every move, which would be slow and costly. Instead, they can use a state channel for their game.

  1. Opening the Channel: They start by deploying a "Judge" smart contract on Ethereum, which holds the 1 ETH wager. The contract knows the rules of the game and the identities of the players.
  2. Playing the Game: Alice and Bob play the game off-chain by signing each move as transactions, which are exchanged directly between them but not broadcast to the blockchain. Each transaction includes a nonce to ensure moves are kept in order.
  3. Closing the Channel: When the game ends, the final state (i.e., the sequence of moves) is sent to the Judge contract, which pays out the wager to the winner after confirming both parties agree on the outcome.

A threat stronger than the execution

If Bob tries to cheat by submitting an old state where he was winning, Alice can challenge this during a dispute period by submitting a newer signed state. The Judge contract can verify the authenticity and order of these states due to the nonces, ensuring the integrity of the game. Thus, the mere threat of execution (submitting the state to the blockchain and having the fraud exposed) secures the off-chain interactions.

Game Theory in Practice

Understanding the application of game theory within blockchain and token ecosystems requires a structured approach to analyzing how stakeholders interact, defining possible actions they can take, and understanding the causal relationships within the system. This structured analysis helps in creating effective strategies that ensure the system operates as intended.

Stakeholder Analysis

Identifying Stakeholders

The first step in applying game theory effectively is identifying all relevant stakeholders within the ecosystem. This includes direct participants such as users, miners, and developers but also external entities like regulators, potential attackers, and partner organizations. Understanding who the stakeholders are and what their interests and capabilities are is crucial for predicting how they might interact within the system.

Stakeholders in blockchain development for systems engineering

Assessing Incentives and Capabilities

Each stakeholder has different motivations and resources at their disposal. For instance, miners are motivated by block rewards and transaction fees, while users seek fast, secure, and cheap transactions. Clearly defining these incentives helps in predicting how changes to the system’s rules and parameters might influence their behaviors.

Defining Action Space

Possible Actions

The action space encompasses all possible decisions or strategies stakeholders can employ in response to the ecosystem's dynamics. For example, a miner might choose to increase computational power, a user might decide to hold or sell tokens, and a developer might propose changes to the protocol.

Artonomus, Github

Constraints and Opportunities

Understanding the constraints (such as economic costs, technological limitations, and regulatory frameworks) and opportunities (such as new technological advancements or changes in market demand) within which these actions take place is vital. This helps in modeling potential strategies stakeholders might adopt.

Artonomus, Github

Causal Relationships Diagram

Mapping Interactions

Creating a diagram that represents the causal relationships between different actions and outcomes within the ecosystem can illuminate how complex interactions unfold. This diagram helps in identifying which variables influence others and how they do so, making it easier to predict the outcomes of certain actions.

Artonomus, Github

Analyzing Impact

By examining the causal relationships, developers and system designers can identify critical leverage points where small changes could have significant impacts. This analysis is crucial for enhancing system stability and ensuring its efficiency.

Feedback Loops

Understanding feedback loops within a blockchain ecosystem is critical as they can significantly amplify or mitigate the effects of changes within the system. These loops can reinforce or counteract trends, leading to rapid growth or decline.

Reinforcing Loops

Reinforcing loops are feedback mechanisms that amplify the effects of a trend or action. For example, increased adoption of a blockchain platform can lead to more developers creating applications on it, which in turn leads to further adoption. This positive feedback loop can drive rapid growth and success.

Death Spiral

Conversely, a death spiral is a type of reinforcing loop that leads to negative outcomes. An example might be the increasing cost of transaction fees leading to decreased usage of the blockchain, which reduces the incentive for miners to secure the network, further decreasing system performance and user adoption. Identifying potential death spirals early is crucial for maintaining the ecosystem's health.

The Death Spiral: How Terra's Algorithmic Stablecoin Came Crashing Down
the-death-spiral-how-terras-algorithmic-stablecoin-came-crashing-down/, Forbes


The fundamental advantage of token-based systems is being able to reward desired behavior. To capitalize on that possibility, token engineers put careful attention into optimization and designing incentives for long-term growth.


  1. What does game theory contribute to blockchain token design?
    • Game theory optimizes blockchain ecosystems by structuring incentives that reward desired behavior.
  2. How do bonding curves apply game theory to improve token economics?
    • Bonding curves set token pricing that adjusts with supply changes, strategically incentivizing early purchases and penalizing speculation.
  3. What benefits do Layer 2 solutions provide in the context of game theory?
    • Layer 2 solutions leverage game theory, by creating systems where the threat of reporting fraudulent behavior ensures honest participation.

Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.

source: https://www.canva.com/design/DAFDTNKsIJs/8Ky9EoJJI7p98qKLIu2XNw/view#7

Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics


The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.


What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.