Business Logic Flaws

Business logic flaws are errors in the design of the protocol's rules or economic model that lead to unintended consequences, even if the code itself is technically correct. In derivatives, this might involve incorrect margin requirements, flawed liquidation triggers, or incentive structures that encourage toxic behavior.

Unlike technical bugs, these flaws are often difficult to identify because they are rooted in the protocol's intended functionality. They require a deep understanding of game theory and quantitative finance to detect.

If exploited, these flaws can lead to the systematic extraction of value from the protocol by sophisticated participants. Addressing them requires rigorous simulation, economic stress testing, and a thorough review of the protocol's incentives.

They represent the most subtle and dangerous form of risk in decentralized finance, as they exploit the very core of the protocol's purpose.