DeFi confronted its very personal contagion occasion this previous week after Euler Finance was drained of practically $200 million by way of six flash loans and a vulnerability.
It was a serious blow to the sector; Euler had been seen as the subsequent nice constructing block after Compound and Aave.
Beyond flinging lengthy-tail belongings into the protocol and playing danger à la Cream Finance, the widespread crypto lender created remoted lending swimming pools to assist silo collateral injury ought to degens borrow towards the flawed memecoin.
Now, although, the entire ship is sunk.
It’s not simply that: together with Euler, roughly 10 different DeFi protocols had been affected thanks to the numerous integrations established alongside the approach. Yield App, Swivel Finance, Angle, and a number of other others all introduced their stage of publicity to their communities.
Ironically, this skill to clip and join numerous liquidity swimming pools and lending platforms all through the ecosystem was one among the key pillars of DeFi.
Composability, the devs known as it. Money legos, yelled the meme gurus.
“Composable protocols are the backbone of DeFi and blockchain technology in general and they are a super power for builders and users,” OpenZeppelin’s options developer Gustavo Gonzalez instructed Decrypt. “But like any super power they also present risks that need to be taken into account when designing and developing a smart contract system.”
Tuesday’s occasions revealed exactly how these dangers can snowball into pandemonium.
“The exploit of Euler Finance and the inherent impact on more than ten DeFi protocols who relied on Euler Finance shows us the other side of composability,” yield protocol Spool’s head of risk Hendo Verbeek told Decrypt. “Contagion by extension, which is even more sour given that a healthy part of the DeFi user base has a limited understanding when it comes to how protocols use each other.”
Indeed, many degens felt blindsided by the hack. After all, Euler had undergone six different audits from some of the leading software auditing firms in the game.
So, what occurred?
It seems that there have been several changes made to the underlying smart contracts after those audits were made. And it was these precise changes that led to the protocol’s vulnerability.
In hindsight, it seems ridiculous that another audit wasn’t ordered, but the person behind Officer’s Notes, an anon Twitter account that tracks hacks and opsec in the crypto world, told Decrypt that the industry is still waiting for a standard security process.
While the industry waits for said standard, projects should be actively combining audits and go heavy on the bug bounties, “which will end up being cheaper for a company/protocol/project that needs to have their smart contracts checked,” they said.
Euler’s has to be one of the biggest losses in DeFi for some time. Still, it’s not over yet for the money lego narrative, said OpenZeppelin’s Gonzalez.
“It’s only another reminder as to why security is difficult and monitoring is important,” he said.
DeFi is way from over—you simply want to know the place to look.
How did DeFi do throughout the banking chaos?
As Circle was reeling with $3.3 billion locked up in a bank that was slowly sinking, its stablecoin plummeted as low as $0.87.
Many degens punted at this pico bottom, borrowing USDT against ETH to scoop up the discounted token, and have since reemerged victorious.
Others cut their losses and fled to more decentralized pastures.
The market cap for Maker’s DAI was one big winner in all this. Though its backing is primarily made up in USDC, and it too fell off its peg, the market capitalization for the largest decentralized stablecoin soared and has stuck there.
Likewise for Liquity’s LUSD and the lesser-known RAI. Each of these stablecoins served up relatively safe decentralized alternatives when SVB hit the fan.
And as they were scrambling for the exits, platforms that offered the best deals on broken stablecoins hit new record volumes (and earned their liquidity providers a pretty penny in the process).
In the heat of the depegging, Curve Finance posted volumes of $6.03 billion.
During the week of March 11, Uniswap did nearly double that across its WETH-USDC, USDT-USDC, and DAI-USDC pools.
In the end, it certainly wasn’t a win for DeFi. But it’s still here, and clearly, traders still need it.
For now, perhaps that’s enough.
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