Analysis

Why Do Solana DeFi Protocols Keep Getting Exploited?

Key Takeaways

  • Solend, one other Solana DeFi protocol, has been exploited by means 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 has made the assaults potential.

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Solana’s Mango Markets and Solend have each come beneath 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 resulting from an oracle assault, which means that an attacker manipulated the oracle costs of sure unstable belongings to borrow protocol funds towards 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 greater 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 web $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 identified contact for the hacker… and have been working carefully with the Solend group over the previous half hour to get them in contact with the hacker to succeed in a decision,” it said. It’s not but clear if Solend will be capable to attain a decision with the attacker to guard customers’ funds. 

At this time’s Solend exploit just isn’t 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 enormous loans from a number of token swimming pools, successfully draining the protocol of its liquidity.

Avraham Eisenberg, a self-described “utilized sport theorist” based mostly out of New York, later revealed that he had executed the assault alongside a group. Mango Markets reached an settlement with Eisenberg, assuring him the protocol wouldn’t pursue a authorized case towards 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 explanation attackers have efficiently manipulated worth oracles on Solana comes right down to the low ranges of liquidity on the blockchain.

Through the 2021 bull run, the full worth locked in Solana DeFi protocols soared, reaching a peak of $10.17 billion in November, per data from DefiLlama. Nevertheless, virtually a 12 months into the present crypto winter, liquidity on Solana is drying up. The community at present hosts solely $940 million value 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 towards. Though tokens like MNGO weren’t traded as a lot as ecosystem staples resembling SOL, USDC, and ETH, liquidity was excessive sufficient for positions to be liquidated if a consumer defaulted. 

Nevertheless, it seems that with the ability to liquidate these collateral funds wasn’t the largest challenge for protocols. With liquidity and buying and selling exercise on Solana dropping every day, it’s grow to be a lot simpler to control the value of illiquid collateral tokens. Trying an oracle assault throughout the top of the bull market would have been futile and virtually actually misplaced the attacker cash. However beneath 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 needs to be cautious of the present state of affairs’s dangers. Whereas not all protocols will likely be weak, those who supply extra unique tokens as collateral might be in danger. Eisenberg has highlighted potential exploits utilizing comparable worth manipulation strategies to his assault on Mango Markets, displaying that he’s actively in search of weak protocols. If liquidity on Layer 1 chains like Solana continues to say no, we’ll probably see extra worth oracle assaults much like the Solend and Mango Markets exploits sooner or later. 

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

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