1 billion in the wild and -99% in an instant: a new stablecoin bites the dust

If there is a form of stability to be found in 2022 in the crazy crypto industry, it is that of the regularity with which hacks follow one another. A worrying phenomenon, including on the supposedly least risky assets in the sector: stablecoins. After the LUNA industrial disaster or more recently Nirvana Finance’s $NIRV Collapseit is the turn of Acala Finance’s $aUSD to join the cluttered graveyard of stablecoins that left too soon.

Spoiler: we can’t.

Finally, except of course if you are the European Central Bank or the US Fed in which case the thing will seem to you perfectly natural. Be that as it may, it is however to this attempt at a tour de force that one could sum up the sad episode of the day. Or how, from a protocol that really holds “only” $100 million of TVL (Total value lockedi.e. the cash immobilized in the said protocol) one or more hackers have tried to start an improbable printing press, in infinite life mode.

The virtual heist attempt took place on the network Polkadotwith in the role of the bank Acala Network and its in-house stablecoin, the aUSD. the aUSD is a stablecoin called “multi-collateralised”. In other words, its equivalence 1 aUSD = 1 USD is not ensured by holding an equivalent amount of USD in cash (like the USDT of Tether or theUSDC of Circle for example), but by the immobilization of a basket of crypto assets which serves as the underlying and guarantee for its stability.

aUSD a multi-collateralized stablecoin.
aUSD, Acala’s stablecoinSource: Acala

Attractive on paper, this architecture is, however, deemed complexand consequently rather brittleas demonstrated by the multiple collapses of other algorithmic stables in recent months.

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-99% for aUSD from Acala Finance

A algorithmic stablecoin owes its strength and success to both the robustness of its protocol and the quality of its underlying assets. The set guarantees, in fact, the confidence of its users. An essential triptych that shattered a few hours ago. Indeed, as part of a coordinated attack Acala Finance’s stablecoin aUSD has been compromised.

In fact, it seems that the failure comes from a lack of adjustment of the iBTC / aUSD liquidity pool according to the first elements press releases by the Acala team on Twitter. A defect that allowed nothing less than the virtually infinite minting of new aUSD. A flaw quickly exploited by smart guys who quickly started the production of 1 billion new tokens, in other words, 1 billion dollars (i.e. more than 10 times the available collateral)!

Among the most visible consequences, the TVL of the protocol suddenly went from around 100M to 50M dollars, according to the specialized site Defillama.

Fall of the acala finance TVL aUSD
Acala’s TVL (Total Value Locked) has lost 50% of its value – Source: Defillama

The DAO of Acala reacted quickly and voted transaction freeze via governance, trying to limit the damage. A decisive action which however did not prevent what is called the ” depeg of the aUSD, i.e. the stalling of its stable value of one dollar, the protocol having been suddenly drowned in new uncollateralized aUSD mints. A picture worth 1000 evils, below you will see how painful the day must have been for aUSD holders

collapse of the aUSD
If 2022 should be an image

Still according to the project team, 99% of aUSD was frozen. In addition, a small amount of the misappropriated assets were traded on the parachain Alcala for ACA tokens and other assets. Assets which are now the subject of careful monitoring, one suspects. Pending resolution of the incident and governance votes, all withdrawal and swap functions have been disabled.

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