Acala exploit: Next stablecoin loses peg to U.S. dollar
On 14 August, hackers took advantage of a misconfiguration of the iBTC/aUSD liquidity pool and minted 1.288 billion of the Acala stablecoin token Acala Dollar (aUSD). The Acala team reacted quickly and was able to prevent the attackers from walking away with $1.288 billion in loot. Nevertheless, the stablecoin lost its peg to the U.S. dollar.
Attack made possible by misconfiguration of liquidity pool
Attackers exploited a misconfiguration of the previously launched iBTC/aUSD liquidity pool to erroneously mint a significant amount of aUSD.
We have identified the issue as a misconfiguration of the iBTC/aUSD liquidity pool (which went live earlier today) that resulted in error mints of a significant amount of aUSD— Acala (@AcalaNetwork) August 14, 2022
Transfer of minted aUSD suspended
By putting the network into maintenance mode, the Acala team froze the minted tokens. This prevented the hackers from making off with the minted aUSD:
Meanwhile functions including swap, xcm, honzon-related etc on Acala have been paused via urgent governance votes until further notice; the oracle pallet has also been paused so that users do not need to concern liquidations in between time.
Referendum on burning erroneously minted aUSD
One day later, an “Incident trace report” was published via Twitter, followed by a community proposal and a referendum.
A community proposal was submitted with reference to Incident Trace Report #1, followed by a referendum vote to return erroneously minted aUSD to Honzon protocol to be burnt from identified accounts.— Acala (@AcalaNetwork) August 15, 2022
Community Proposal: https://t.co/T4hChJQdZh
The referendum includes the following steps:
(1) The 1,288,561,129 aUSD erroneously minted aUSD remained on these 16 accounts be returned to honzon protocol to be effectively burnt
(2) The 4,299,119 erroneously minted aUSD remaining in the iBTC/aUSD reward pool be returned to honzon protocol to be effectively burnt
At the time of publication of this article, the referendum is still ongoing.
Stablecoin loses peg to the U.S. dollar
The crash of the aUSD stablecoin, which is based on the Polkadot blockchain, could not be prevented. The stablecoin loses its peg to the US dollar as a result of the attack. The incident again raises questions about the security of stablecoins, especially when these stablecoins are crypto-based or rely on an algorithmic mechanism to keep them pegged. The Terra USD collapse in May 2022 impressively proved that algorithmic-based stablecoins can always be vulnerable to errors in the protocol.
This article does not provide investment advice. Historical cryptocurrency data is not a guarantee of future market developments. The author may hold several of the cryptocurrencies mentioned in this article.
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