Sherlock V2


What is Sherlock?

  • Sherlock is a risk management platform designed to provide protocols with affordable, reliable coverage against smart contract exploits. Once Sherlock V2 launches, anyone (in a designated jurisdiction) will be able to stake in Sherlock's staking pools and receive what will likely be one of the highest risk-adjusted returns in DeFi. This is made possible by Sherlock's expert smart contract security team, who reviews and prices coverage for every covered protocol and is incentivized with “skin-in-the-game” alongside Sherlock stakers.

How is Sherlock different from other risk management protocols?

  • Sherlock's approach is highly differentiated in 3 areas:
    • Coverage is managed by protocols/DAOs instead of users
      • Right now, the burden of managing smart contract risk is borne entirely by users. By working directly with protocols, smart contract coverage can be applied to all users with no extra work required. Not to mention, when an exploit happens, protocol teams often find themselves deciding to reimburse users who did not purchase insurance (all of them, usually), so getting covered at the protocol level helps teams sleep better.
    • Pricing is done by security experts with skin in the game
      • Assessing smart contract risk is hard. Really hard. Sherlock's approach puts the responsibility squarely in the hands of those who are most capable and aligns their incentives as closely as possible with stakers.
    • Claims decisions are made by an unbiased 3rd party
      • Follow the incentives. Does your payout rely on a decision made by someone who will lose a lot of money if they decide in your favor? Sherlock has partnered with UMA to offer an unbiased claims process handled by objective, third-party voters who have economic guarantees around their incentives. Read more here.

How does staking work?

  • A user stakes USDC for a fixed term (3 months, 6 months, etc.) and receives a market-leading yield in return. The yield is partially fixed, partially variable. The amount of SHER tokens a staker will receive is known at the time of staking and is fixed for the duration of the stake. Other yield strategies employed by Sherlock (depositing in Aave, etc.) may be fixed or floating. And the premiums received by stakers would be expected to increase as more protocols become covered. If there is a covered smart contract exploit during the term, a staker's funds can be slashed up to 33%.

How can I get coverage as a protocol?

  • Sherlock is currently in a guarded launch with a select number of protocols. Please email us at [email protected]

Is coverage for a protocol always fully collateralized?

  • One of the superpowers of a risk management protocol like Sherlock is using diversification to increase the affordability of coverage and limit the need for full collateralization. This is what allows coverage to be affordable in traditional markets. The value staked into Sherlock's staking pools is designed to be less than the total funds that Sherlock is covering. By the same token, the staking pool is also designed to be significantly larger than the max size of coverage at any one protocol.
  • Isolated exploits will always be 100% paid out. Sherlock is designed to have 300% overcollateralization for any singular exploit event, no matter how large.
  • Things get more interesting if an exploit occurs at multiple covered protocols and drains 100% of the funds of multiple protocols at the same time. In this situation, depending on the capital efficiency of Sherlock, Sherlock may not be able to reimburse each exploit (assuming 4 or more simultaneous exploits) at 100 cents on the dollar. However, Sherlock's risk models are designed to mitigate the risk of multiple protocols being affected by the same type of exploit. Consequently, it would constitute an extremely unlikely event (never before seen in DeFi) to have multiple covered protocols hacked for nearly all of their TVL at the same time -- but it is theoretically possible.