Smart contract auditing platform Sherlock has raised $4 million in a seed round led by Archetype. The funding comes during a wave of multimillion-dollar crypto hacks, which often exploit weaknesses in the underlying code of Web3 protocols.
“No auditors have incentives aligned with the protocols they audit. Sherlock is the first auditor that actually cares if a protocol they audit gets hacked because we pay out up to $10 million if they do get hacked,” Sherlock co-founder Jack Sanford told CoinDesk in an interview.
Hackers stole $1.9 billion worth of cryptocurrencies through July, up from nearly $1.2 billion at the same time last year, according to recent Chainanalysis data. August started off with the nearly $200 million breach of cross-chain bridge Nomad, and an attack of Solana-based wallets drained at least $5 million in cryptocurrency.
Crypto protocol audits typically include two to three auditors scouring the code over a few weeks. Sherlock, which sells its solutions directly to protocols, starts with one or two senior auditors taking a brief look at the code. Sherlock then hosts an auditing competition where entrants are financially rewarded for finding vulnerabilities. The auditors come from a list of people that Sherlock has worked with before, but approved auditors will eventually include the top contest performers, explained Sanford.
Sherlock recently launched an incentive program for investors who want to stake assets to the auditing protocol. Stakers can receive 10% annual percentage yield (APY) on the USDC stablecoin, plus 5% APY on the native SHER token, which has yet to begin trading.
The new capital will be used to build out the team and to fund outside audits on the Sherlock platform, said Sanford. Other participants in the funding round included digital asset management group Spartan and crypto-focused venture capital firms Lattice and CoinFund. Last month, CoinFund launched a $300 million fund to make early-stage investments in Web3 projects.