July 15, 2024

BNB Chain Core Team to Take Over Large Loan Position After Hack

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The BNB Chain core team is set to take over a large loan position that was created by an entity that executed a massive hack on the BNB Chain last October.

The position, which is worth approximately $210 million, was created by using stolen BNB to borrow $150 million worth of stablecoins on Venus Protocol. The health rate of this loan position has come down to hover precariously around 1.03, dangerously close to its liquidation point. A drop in BNB’s price to $220, down from its present rate of $231, could trigger the liquidation process.

In November, a proposal was passed that meant only the core team had the permissions to liquidate the position, in order to reduce the impact on the rest of the market were it to take place.

Earlier today, the developers started acting on this responsibility. They sent $30 million of USDT from Binance to the wallet that has permission to liquidate the position, as noted by analysts at Scope Protocol and confirmed by Venus.

“The whitelisted wallet was initially funded with $30 [million] in USDT with the assurance of preventing shortfall on Venus and providing additional support through this Venus governance approved mechanism,” said the Venus team on Twitter.

Last year’s exploit involved the hacker manipulating security proofs, capitalizing on a vulnerability related to the “iavl hash check” within the BNB bridge. By exploiting this weakness, the attacker was able to mint 2 million BNB tokens, valued at $560 million at the time.

In response to the attack, the BNB Chain team swiftly halted the blockchain, instructing all its validators to cease operations. This decisive action aimed not only to impede the attacker’s progress but also to salvage any exploited funds that the hacker had not yet transferred to other chains.

The BNB Chain core team has not yet commented on when or how it plans to liquidate the loan position. However, it is likely that they will take action soon, as the position is getting dangerously close to its liquidation point.

The liquidation of this large loan position could have a significant impact on the BNB Chain ecosystem. It could lead to a sharp decline in the price of BNB, which could in turn lead to further liquidations and a cascading effect throughout the market.

The BNB Chain core team will need to tread carefully when liquidating this position. They will need to ensure that they do not cause too much volatility in the market, which could lead to further losses for users.

The liquidation of this large loan position is a reminder of the risks associated with DeFi platforms that are susceptible to bad actors and aren’t integrated into the security protocols of the layer-1 blockchain. While these platforms offer the potential for high returns, they also carry a high degree of risk. Users should carefully consider the risks before using these types of lending platforms.

There are a number of risks associated with lending platforms in the crypto space, especially those that provide bridges and are not secured by a layer-1 blockchain network:

  • Smart contract risk: Smart contracts are the underlying technology that powers most DeFi platforms, including lending platforms. Smart contracts are code that runs on a blockchain and automatically executes transactions based on predetermined conditions. However, smart contracts are not without risk. They can be hacked, exploited, or have bugs that could lead to losses for users.
  • Counterparty risk: When you lend your cryptocurrency to someone else, you are taking on counterparty risk. This means that you are trusting the other party to repay you. If the other party defaults on their loan, you could lose your cryptocurrency.
  • Liquidity risk: Lending platforms often offer high interest rates to attract borrowers. However, these high interest rates can lead to liquidity problems. If too many people want to withdraw their funds from a lending platform at the same time, the platform may not have enough liquidity to meet all of the withdrawals. This could lead to a bank run, where everyone tries to withdraw their funds at once, leading to the platform becoming insolvent.
  • Security risk: Lending platforms are often targeted by hackers. In 2021, there were a number of high-profile hacks of lending platforms, including Cream Finance, Poly Network, and BadgerDAO. These hacks resulted in the loss of millions of dollars worth of cryptocurrency.
  • Regulatory risk: The regulatory landscape for DeFi is still evolving. This means that lending platforms could be subject to new regulations that could impact their operations. For example, regulators could require lending platforms to obtain licenses or to comply with certain reporting requirements.

These are just some of the risks associated with lending platforms in the crypto space. It is important to carefully consider these risks before using any crypto lending platform.

Terry Jones
Technology/Digital Assets Desk

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