1 billion in the wild and -99% in no time: A new stablecoin bites the dust

If there is one form of stability in the mad crypto industry in 2022, it is the regularity with which hacks follow each other. A worrying phenomenon, even when it comes to the supposedly least risky assets in the industry: stablecoins. After this LUNA industrial disaster or recently Nirvana Finance’s $NIRV collapseSo it’s Acala Finance’s turn for aUSD to join the crowded graveyard of stablecoins gone too soon.

Spoilers: we can’t.

Finally, except of course if that’s you European Central Bank or the US Federal Reserve in that case the thing will appear to you completely natural. Be that as it may, it’s this attempt at a feat that could be summed up sad consequence of the day. Or like, from a protocol that really “just” 100 million dollars by TVL (total lockedi.e. the cash immobilized in this protocol) one or more hackers have attempted to start an unlikely printing machine in infinite life mode.

The virtual heist attempt took place on the network Specklewith in the role of the bank Acala network and its in-house stablecoin, the aUSD. the aUSD is a stablecoin referred to as “multiple collateralised”. In other words, its equivalence 1 aUSD = 1 USD is not assured by holding an equivalent amount of USD in cash (like Tether’s USDT or theUSDC by Circle), but by immobilizing a basket of crypto assets that serves as the underlying asset and guarantor of its stability.

aUSD is a multi-collateralized stablecoin. — *aUSD, Acala’s stablecoin* – *Source: Acala*

Attractive on paper, that architecture however, is accepted complexand consequently rather brittleas the multiple collapses of other algorithmic stables in recent months have shown.

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-99% for one USD 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 indeed guarantees the trust 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, the failure seems to be due to a lack of adjustment of the iBTC/aUSD liquidity pool according to the first elements press releases from the Acala team on Twitter. A lack that allowed nothing less than that virtually unlimited minting of new aUSD. A flaw that was quickly exploited by bright minds who quickly began producing 1 billion new tokens, in other words, $1 billion (i.e. more than 10 times the available collateral)!

One of the most visible consequences, according to specialist website Defillama, was that the protocol’s TVL suddenly rose from around $100 million to $50 million.

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

Acala’s DAO responded and voted quickly Transaction stop over governance, trying to limit the damage. A decisive action, which however did not prevent what was called the ” depeg of aUSD, ie stalling at its stable value of one dollar, as the protocol was suddenly drowned in new unsecured aUSD minting. A picture worth 1000 evils, below you can see how painful the day must have been for holders of aUSD

collapse of the aUSD — *If 2022 is supposed to be a picture*

According to the project team 99% of a USD has been frozen. In addition, a small portion of the embezzled assets were traded on the parachain Alcala for ACA tokens and other assets. Assets now subject to careful scrutiny, one suspects. Pending resolution of the incident and governance votes, all withdrawal and exchange features have been disabled.

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