Why Do Solana DeFi Protocols Keep Getting Exploited?

Why Do Solana DeFi Protocols Keep Getting Exploited?

Key Takeaways

  • Solend, one other Solana DeFi protocol, has been exploited by way of a worth 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 have made the assaults attainable.

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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 as a result of an oracle assault, which means that an attacker manipulated the oracle costs of sure unstable belongings to borrow protocol funds in opposition to them with the next precise worth. 

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

The “dangerous debt” happens when an attacker tips a protocol’s worth oracles into valuing collateral belongings increased than they need to be. This provides them “credit score” to borrow funds from a protocol with the next 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 announced it had found one of many attacker’s pseudonymous identities. “We found a recognized contact for the hacker… and have been working intently 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 be capable to attain a decision with the attacker to guard customers’ funds. 

At the moment’s Solend exploit will not be the primary time oracle worth 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 value of the protocol’s native MNGO token. Doing so allowed the attacker to take out a sequence of huge 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 belongings. Though Eisenberg maintains his actions didn’t represent an exploit, however reasonably, in his phrases, a “extremely worthwhile buying and selling technique,” most onlookers weren’t satisfied. 

Low Liquidity, Excessive Price

The rationale attackers have efficiently manipulate worth oracles on Solana comes right down to the low ranges of liquidity on the blockchain.

Through the 2021 bull run, the entire worth locked in Solana DeFi protocols soared, reaching a peak of $10.17 billion in November, per data from DefiLlama. Nonetheless, nearly a yr into the present crypto winter, liquidity on Solana is drying up. The community at present hosts solely $940 million price of belongings, 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 comparable to 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 largest concern for protocols. With liquidity and buying and selling exercise on Solana dropping day by day, it’s grow to be a lot simpler to govern the value of illiquid collateral tokens. Making an attempt an oracle assault in the course of the top of the bull market would have been futile and nearly actually misplaced the attacker cash. However below the present situations, such exploits have grow to be 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 ought to be cautious of the present scenario’s dangers. Whereas not all protocols will likely be susceptible, those who supply extra unique tokens as collateral may very well be in danger. Eisenberg has highlighted potential exploits utilizing comparable worth manipulation strategies to his assault on Mango Markets, displaying that he’s actively on the lookout for susceptible protocols. If liquidity on Layer 1 chains like Solana continues to say no, we’ll seemingly see extra worth 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 belongings. 

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