Why Do Solana DeFi Protocols Keep Getting Exploited?

Solana’s Mango Markets and Solend have each come below assault in latest 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 belongings to borrow protocol funds towards them with a better 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 unhealthy debt,” the protocol tweeted.

The “unhealthy debt” happens when an attacker tips a protocol’s worth oracles into valuing collateral belongings larger than they need to be. This provides them “credit score” to borrow funds from a protocol with a better 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 identified contact for the hacker… and have been working intently with the Solend staff 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 have the ability to attain a decision with the attacker to guard customers’ funds. 

At present’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 worth 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 staff. 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 quite, 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.

Throughout 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. Nonetheless, nearly a 12 months into the present crypto winter, liquidity on Solana is drying up. The community at the moment 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 latest 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 akin to SOL, USDC, and ETH, liquidity was excessive sufficient for positions to be liquidated if a consumer defaulted. 

Nonetheless, it seems that having the ability to liquidate these collateral funds wasn’t the most important problem for protocols. With liquidity and buying and selling exercise on Solana dropping each day, it’s change into a lot simpler to govern the worth of illiquid collateral tokens. Making an attempt an oracle assault in the course of the peak of the bull market would have been futile and nearly definitely misplaced the attacker cash. However below the present situations, such exploits have change 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 will likely be weak, those 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, displaying that he’s actively in search of weak protocols. If liquidity on Layer 1 chains like Solana continues to say no, we’ll doubtless 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 creator owned SOL and several other different digital belongings.