1 billion in the wild and -99% in the blink of an eye: a new stablecoin bites the dust

If there is any kind of stability in the crazy crypto industry in 2022, it will be the regularity with which hacks follow each other. A worrying phenomenon, also on the so-called least risky assets in the sector: stablecoins. After the LUNA industrial disaster or more recent Nirvana Finance’s $NIRV Collapseso it’s the turn of a USD from Acala Finance to join the messy graveyard of stablecoins that left too early.

Update from 08/15 at 22:00: in response to this crisis situation, a board vote was urgently organized by the Acala team. The consequences of this vote are discussed in detail in this article.

Spoiler: We can’t.

Finally, unless of course you European Central Bank or the US Fed in that case the thing will look like you completely natural. Be that as it may, however, it is for this attempt at a tour de force that one might summarize: sad episode of the day. Or how, from a protocol that really “only” applies $100 million from TVL (Total value lockedie the money immobilized in said protocol) one or more hackers attempted to start an unlikely printing press, in infinite life mode.

The attempted virtual robbery took place on the network Dotwith in the role of the bank Acala Network and its internal stablecoin, the aUSD. the aUSD is a stable currency called “multi-collateralised”. In other words, its equivalence to 1 aUSD = 1 USD is not guaranteed by holding an equivalent amount of USD in cash (such as Tether’s USDT or theUSDC from Circle for example), but through the immobilization of a basket of crypto assets that serves as the underlying asset and guarantee of its stability.

aUSD, the stable currency of AcalaSource: Acala

Attractive on paper, this architecture however, is considered complexand consequently earlier brittleas evidenced by the multiple collapses of other algorithmic stables in recent months.

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-99% for a USD from Acala Finance

A stable currency owes its strength and success to both the robustness of its protocol and the quality of its underlying assets. In fact, the set guarantees the trust of its users. An essential triptych that fell apart a few hours ago. Indeed, as part of a coordinated attack Acala Finance’s stablecoin aUSD has been compromised.

In fact, it seems that the failure stems from a lack of adjustment of the iBTC/aUSD liquidity pool according to the first elements press releases by the Acala team on Twitter. A defect that allowed nothing less than the virtually infinite coin of new aUSD. A flaw that was quickly exploited by smart guys who quickly started producing 1 billion new tokens, in other words, $1 billion (ie more than 10 times the available collateral)!

One of the most visible impacts was that the protocol’s TVL suddenly went from about $100 million to $50 million, according to specialized site Defillama.

Fall of the acala finance TVL aUSD
Acala’s TVL (Total Value Locked) has lost 50% of its value – Source: Defillama

Acala’s DAO responded quickly and voted freeze transaction through governance, try to limit the damage. A decisive action that, however, did not prevent what the ” depeg of the aUSD, ie the stagnation of its stable value of one dollar, with the protocol suddenly drowned in new non-collateral aUSD coins. A photo worth 1000 evils, below you can see how painful the day must have been for USD holders

collapse of the aUSD
If 2022 should be an image

Still according to the project team, 99% of a USD was frozen. In addition, a small portion of the embezzled assets was traded on the parachain Alcala for ACA tokens and other assets. Assets that are now the subject of careful monitoring are suspected. Pending resolution of the incident and board votes, all recording and trading functions are disabled.

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