Why Do Solana DeFi Protocols Keep Getting Exploited?

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, that means that an attacker manipulated the oracle costs of sure risky property 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 Steady, 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 property 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 intently with the Solend group over the previous half hour to get them in contact with the hacker to succeed in a decision,” it acknowledged. It’s not but clear if Solend will be capable of attain a decision with the attacker to guard customers’ funds. 

Immediately’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 worth of the protocol’s native MNGO token. Doing so allowed the attacker to take out a collection 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” primarily based 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 in opposition to him in return for $53 million of the stolen property. Though Eisenberg maintains his actions didn’t represent an exploit, however quite, in his phrases, a “extremely worthwhile buying and selling technique,” most onlookers weren’t satisfied. 

Low Liquidity, Excessive Value

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

Throughout 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. Nevertheless, nearly a yr into the present crypto winter, liquidity on Solana is drying up. The community at present hosts solely $940 million price of property, 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 corresponding to SOL, USDC, and ETH, liquidity was excessive sufficient for positions to be liquidated if a consumer defaulted. 

Nevertheless, it seems that having the ability to liquidate these collateral funds wasn’t the largest difficulty for protocols. With liquidity and buying and selling exercise on Solana dropping every day, it’s develop into a lot simpler to govern the worth of illiquid collateral tokens. Making an attempt an oracle assault throughout the peak of the bull market would have been futile and nearly actually misplaced the attacker cash. However beneath the present situations, such exploits have develop into 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 scenario’s dangers. Whereas not all protocols can be weak, people who supply extra unique tokens as collateral could possibly be in danger. Eisenberg has highlighted potential exploits utilizing related worth manipulation strategies to his assault on Mango Markets, exhibiting that he’s actively on the lookout for 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 penning this piece, the creator owned SOL and a number of other different digital property.