Sherlock
Other · Underwriting
Sherlock provides smart-contract audit coverage for DeFi protocols. Security researchers and stakers back a first-loss capital pool that pays out when covered protocols suffer exploits matching policy terms.
Audit-backed protocol coverage with a first-loss capital pool.
Protocol TVL
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Risks identified
- Smart Contract
The entire coverage product is exposed to smart-contract exploit risk: valid claims (e.g. the $4.5M Euler payout) draw directly from the USDC staking pool, and the underwriting contracts themselves are attack surface.
- Reserve / Depeg
The coverage pool was severely undercapitalized relative to outstanding exposure: reserves fell ~90% to ~$2.9M while $16.5M of cover was live, meaning a single large claim could exhaust reserves and leave cover unpaid.
- Counterparty
Sherlock deposited staker USDC into external yield venues (Maple Finance) and lost ~$4M when borrower Orthogonal Trading defaulted after FTX exposure, showing coverage capital was exposed to third-party credit/counterparty default.
- Governance
Claim outcomes depend on the Sherlock Protocol Claims Committee (core team + advisors) with escalation only to UMA's Optimistic Oracle; claimants face discretionary, centralized first-pass decisions and a fee to escalate.
- Systemic
Coverage mispricing (protocols charged far less than the loss frequency warranted) plus stakers rushing to withdraw during the 2023 crisis created a run-risk that threatened the viability of the whole coverage model, ultimately forcing a pivot away from staker-funded cover.