Logical Soundness in DeFi

Logical soundness in DeFi refers to the property that a protocol's economic and financial rules are consistent, free from contradictions, and behave predictably under all market conditions. If a protocol lacks logical soundness, it may contain hidden incentive misalignments that can be exploited by adversarial actors.

For example, a derivative protocol might have a flaw where the liquidation logic is bypassed during high volatility. Achieving logical soundness requires rigorous economic modeling and formal verification of the smart contracts.

It ensures that the protocol remains solvent and secure even when market participants act in ways that are technically allowed but economically harmful to the system.