Analysis

Why Do Solana DeFi Protocols Maintain Getting Exploited?

Key Takeaways

  • Solend, one other Solana DeFi protocol, has been exploited by means of a value oracle assault for $1.26 million.
  • The assault follows final month’s Mango Markets exploit that noticed $100 million stolen.
  • Protocols letting customers deposit illiquid tokens as collateral and low liquidity on Solana has made the assaults potential.

Solana’s Mango Markets and Solend have each come below assault in current weeks. 

Solana DeFi Attacked Once more

One other Solana DeFi protocol has been exploited. 

Solend, a lending and borrowing protocol constructed on Solana, reported that an attacker drained $1.26 million of customers’ funds Wednesday. The exploit was on account of an oracle assault, which means that an attacker manipulated the oracle costs of sure unstable property to borrow protocol funds in opposition to them with a better precise worth. 

Solend acknowledged the exploit on Twitter, revealing that three lending swimming pools had been affected. “An oracle assault on USDH affecting the Steady, Coin98, and Kamino remoted swimming pools was detected, leading to $1.26M in unhealthy debt,” the protocol tweeted.

The “unhealthy debt” happens when an attacker methods a protocol’s value oracles into valuing collateral property increased than they need to be. This provides them “credit score” to borrow funds from a protocol with a better precise worth than their inflated collateral. On this occasion, the attacker borrowed USDH stablecoin funds with no intention of paying them again, leading to a internet $1.26 million loss for the protocol. 

Shortly after the assault, fellow Solana DeFi protocol SolBlaze introduced it had found one of many attacker’s pseudonymous identities. “We found a identified contact for the hacker… and have been working carefully with the Solend crew over the previous half hour to get them in contact with the hacker to achieve a decision,” it acknowledged. It’s not but clear if Solend will have the ability to attain a decision with the attacker to guard customers’ funds. 

At the moment’s Solend exploit will not be the primary time oracle value manipulation has been used to assault DeFi protocols on Solana. Final month, the decentralized buying and selling platform Mango Markets was exploited for over $100 million when an attacker pumped up the worth of the protocol’s native MNGO token. Doing so allowed the attacker to take out a collection of enormous loans from a number of token swimming pools, successfully draining the protocol of its liquidity.

Avraham Eisenberg, a self-described “utilized recreation theorist” based mostly out of New York, later revealed that he had executed the assault alongside a crew. Mango Markets reached an settlement with Eisenberg, assuring him the protocol wouldn’t pursue a authorized case in opposition to him in return for $53 million of the stolen property. Though Eisenberg maintains his actions didn’t represent an exploit, however quite, in his phrases, a “extremely worthwhile buying and selling technique,” most onlookers weren’t satisfied. 

Low Liquidity, Excessive Price

The explanation attackers have efficiently manipulated value oracles on Solana comes right down to the low ranges of liquidity on the blockchain.

In the course of the 2021 bull run, the whole worth locked in Solana DeFi protocols soared, reaching a peak of $10.17 billion in November, per information from DefiLlama. Nonetheless, nearly a yr into the present crypto winter, liquidity on Solana is drying up. The community presently hosts solely $940 million price of property, representing a 90% decline. Moreover, Solana’s on-chain exercise, which acts as a tough heuristic for the quantity of buying and selling on the community, has additionally tailed off in current months. 

Again when Solana had ample liquidity, many DeFi protocols began letting customers deposit lesser-known tokens as collateral to take out loans or commerce in opposition to. Though tokens like MNGO weren’t traded as a lot as ecosystem staples reminiscent of SOL, USDC, and ETH, liquidity was excessive sufficient for positions to be liquidated if a consumer defaulted. 

Nonetheless, it seems that with the ability to liquidate these collateral funds wasn’t the most important situation for protocols. With liquidity and buying and selling exercise on Solana dropping day by day, it’s change into a lot simpler to govern the worth of illiquid collateral tokens. Trying an oracle assault in the course of the top of the bull market would have been futile and nearly definitely misplaced the attacker cash. However below the present situations, such exploits have change into more and more profitable, so long as the attacker has sufficient money to maneuver costs within the first place. 

These with cash deposited into Solana DeFi protocols must be cautious of the present scenario’s dangers. Whereas not all protocols will likely be susceptible, those who provide extra unique tokens as collateral could possibly be in danger. Eisenberg has highlighted potential exploits utilizing comparable value manipulation strategies to his assault on Mango Markets, displaying that he’s actively in search of susceptible protocols. If liquidity on Layer 1 chains like Solana continues to say no, we’ll doubtless see extra value oracle assaults just like the Solend and Mango Markets exploits sooner or later. 

Disclosure: On the time of penning this piece, the writer owned SOL and a number of other different digital property. 

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