One of Ethereum and crypto’s “hottest use cases,” decentralized finance, got a big scare on June 17th as some market participants thought that a key application was being attacked by a bad actor.
The application’s operators have since assured the community that user funds are safe.
Ethereum DeFi Protocol ‘Hack’ Scares Users
On June 17th, decentralized finance information portal DeFiPrime reported that the Ethereum addresses affiliated with decentralized liquidity network Bancor were being “drained.”
San Francisco-based venture capital fund Hex Capital elaborated on the details, writing in response to DeFiPrime:
“User funds being drained […] Looks like they are trying to white-hat drain user funds before someone else can, but it appears they are/were too late in many cases.”
Breaking: looks like @Bancor is being drained right now #defi #ethereum
It's developing situation and need to be monitored closely
— defiprime (@defiprime) June 18, 2020
This would have been Bancor’s latest major security breach — $13.5 million worth of cryptocurrency (mostly Ethereum) was lost in 2018 due to compromised smart contracts.
But according to DeFiPrime, who conversed with the Bancor team, nothing is too amiss:
“A security vulnerability was discovered in the new BancorNetwork v0.6 contract pushed two days ago. After discovering the vulnerability we performed a white-hat attack to migrate funds to safety.”
It was added that the smart contract has since been reaudited to minimize risk and that users who deposited cryptocurrency into the Ethereum contract have no lost no funds.
Not Without Its Problems
While Ethereum DeFi may be safe for now, that’s not to say that this segment of the industry is without its problems.
Bancor may have dodged a bullet, but other DeFi users and protocols have not been as lucky.
Lending protocol Lendf.me/Dforce lost $25 million worth of cryptocurrency in April due to an exploit. The funds have since been recovered, but there was a point in time where they could have been lost forever if not for mistakes on the hacker’s part.
The hack still shows the risks that DeFi users face when using new protocols and when finance blockchain applications are literal honeypots for hackers, available to be breached 24/7.
Camila Russo — a Bloomberg journalist turned Ethereum content creator — once remarked on the matter of DeFi security:
“It’s not just one project’s problem. DeFi needs better security standards or we’ll continue seeing the downside of that composability double-edged sword.”
DeFi is also currently being bottlenecked, according to a top fund manager in the space.
As reported by Bitcoinist previously, Multicoin Capital managing partner Kyle Samani explained that DeFi is likely at a “plateau” in the medium term due to “invisible asymptotes.
“You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work. High latency –> all kinds of negative second order effects. So I think for now we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved.”
This was in reference to ETH’s relatively high block times (compared to the speed of the internet) and its potential high fees, which may deter DeFi adoption.
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Ethereum DeFi Protocol Assures Users “Funds Are Safe” After Rumored Hack