Why Do Solana DeFi Protocols Keep Getting Exploited?

Solana’s Mango Markets and Solend have each come below 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 risky belongings to borrow protocol funds in opposition to 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 dangerous debt,” the protocol tweeted.

The “dangerous debt” happens when an attacker methods a protocol’s value oracles into valuing collateral belongings increased 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 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 recognized 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 said. It’s not but clear if Solend will have the ability to attain a decision with the attacker to guard customers’ funds. 

Right this moment’s Solend exploit just isn’t the primary time oracle value 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 enormous 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 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 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 Value

The explanation attackers have efficiently manipulated value oracles on Solana comes right down to the low ranges of liquidity on the blockchain.

In the course of 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 12 months into the present crypto winter, liquidity on Solana is drying up. The community at present hosts solely $940 million price 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 in opposition to. Though tokens like MNGO weren’t traded as a lot as ecosystem staples equivalent to SOL, USDC, and ETH, liquidity was excessive sufficient for positions to be liquidated if a person defaulted. 

Nevertheless, it seems that with the ability to liquidate these collateral funds wasn’t the largest subject for protocols. With liquidity and buying and selling exercise on Solana dropping each day, it’s change into a lot simpler to control 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 actually 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 must be cautious of the present state of affairs’s dangers. Whereas not all protocols shall be susceptible, people who supply extra unique tokens as collateral might be in danger. Eisenberg has highlighted potential exploits utilizing related value manipulation strategies to his assault on Mango Markets, displaying that he’s actively in search of susceptible protocols. If liquidity on Layer 1 chains like Solana continues to say no, we’ll possible see extra value 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 several other different digital belongings.