In a series of 4 articles, we will explain to you step by step how significant parts of Core Protocol work. These 4 articles will be about:
- Reporting
- Staking
- Decision-Making Body
- Refund Process
A quick reminder of how Core Protocol essentially works:
Let’s start with Reporting
The objective of the Lossless Core Protocol is to provide an extra security layer in order to prevent fraudulent token movement and recover fraudulently taken tokens. This functionality is available to all the tokens that follow the LERC20 standard. Core Protocol exists alongside the Vault and Treasury Protection Protocol.
To achieve this goal, four types of actors work together in order to detect, report, and recover funds from fraudulent transactions. These are:
- Finders
- Stakers
- LERC20 Token Owners
- Decision Making Body
Each part has an essential role to play within the Lossless Core Protocol. There are three main tasks that are activated in it and one extra task that while it’s not essential, it serves as a booster to provide more visibility and urgency to a certain report.
The three principal tasks can be broken down into:
- Report Generation
- Report Investigation and Solving
- Stolen funds refunding and Reward distribution
The extra step available to the community, while extremely useful, is not necessary for a report to be processed:
- Report Staking
In each step, there are some roles that take part in the process. Some of them are official roles that need to be given on smart contract level while others are community roles that can be interchangeable and fluid.
Report Generation
This is the first and foremost step to be taken when an incident is identified. The finders would proceed to generate a report in order to trigger an investigation on a particular address and token.
The report will be generated with the following parameters. LERC20 Token Smart Contract Address of the stolen funds and the Address that allegedly stole the funds.
As soon as the report gets generated the LERC20 Token gets an Emergency Mode activated which lasts for one settlement period.
The report will be valid for a certain period of time on which it’ll be worked on, staked, and investigated. As soon as the report gets generated the reported address gets blacklisted immediately so the stolen funds cannot be moved.
The report will also be immediately listed on the Lossless Dashboard.
As an extra feature, if the malicious address manages to front-run the report, a second address can be added to the report. This second account will have the same penalties as the main reported address, but one is able to front-run the finder again because of the emergency mode.
Also, each report requires the reporter to stake LSS tokens. This initial stake gets returned back to the staker when the report turns out to be valid. In cases where the report is not valid, this stake gets taken.
Settlement Period
Each LERC20 Standard Token can set up its own settlement period by interacting with the Lossless Controller V3. The settlement period works by queueing the received funds for the amount of time configured by the Token Owners. This mechanism stops the single transaction hacks, cause the exploiter is no longer able to steal the tokens and sell them in a single transaction.
With the settlement period, an address is able to transfer unsettled tokens only once per period. After the period passes, the received tokens become settled and can be moved freely.
Furthermore, on each settlement period, there’s a transfer threshold when sending funds to a DEX. This allows the users to transfer some amount of the unsettled tokens and thus reduces an impact on retail trading.
Emergency Mode
It refers to a state the token enters when a new report gets generated. It lasts for one settlement period and during this time the transfers work differently than with the regular settlement periods.
During the emergency mode, no unsettled tokens can be moved without exception.
Rewards
After a report is validated by the Decision Making Body and it is concluded that the report address is actually involved in the incident, the reporter is entitled to the reward.
The reporter’s reward is a percentage of all the tokens that were stopped from being stolen by the report.
About Lossless
Lossless is the world’s first DeFi hack mitigation tool for token creators. Apart from our known cyber security solutions and renowned professionals, the community also plays a role. With a tangible reward system, community members are also encouraged to explore new ways to detect hacks and fraudulent transactions.
Our protocol halts counterfeit transactions through various methods of fraud identification and automatically reverses any stolen tokens back to the original owner. Our solutions to the impending problems of cyber theft within the blockchain space are thorough and applicable within many protocols.
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