Balancer has ordered users that provided $6.3 million in liquidity to five pools on the Ethereum, Fantom, Optimism and Polygon networks to remove all their funds. The platform has not yet revealed the real cause of the attack.
Decentralised finance (DeFi) platform Balancer has urged liquidity providers (LP) on the exchange to remove their funds from five pools that are currently at risk. According to a statement by Balancer Labs, a group that oversees the development of decentralised exchange, $6.3 million worth of funds deposited into pools on Ethereum (ETH), Optimism (OP), Polygon (MATIC) and Fantom (FTM) blockchains are to be withdrawn with immediate effect.
On Ethereum, the exploit has affected the DOLA/bb-a-USD pool with a current total value locked (TVL) of $3.8 million. On Polygon, the bb-am-USD/miMATIC pool with a TVL of $9,000 was affected. On Optimism, where ‘It’s My Life’ and ‘Smells Like Spartan Spirit’ pools operated by Balancer’s partner Beethoven X with an estimated TVL of $2 million was affected. On Fantom, the Tenacious Dollar pool which is also maintained by Beethoven X with a TVL of $1.6 million was caught in the exploit.
However, according to Balancer founder Fernando Martinelli, pools on Ethereum scaling solution Arbitrum are unaffected. The company says this exploit appears to be part of a larger attack, which it is currently trying to figure out. Meanwhile, after a vote between Balancer Labs engineers and BAL token holders, the exchange has used its emergency powers to set protocol fees to zero on some of its pools. This was done in order to protect LPs against the issue that has affected the five pools, the cause of which the exchange will reveal in the near future.
The remaining pools on the DeFi protocol will continue to operate as usual, hence, liquidity providers will not be required to remove their funds. The pools will accrue fees for token swaps, from which Balancer will not take its cut.
Balancer is an automated market maker (AMM) and decentralised exchange (DEX) that allows users to swap various ERC-20 – an Ethereum token standard, assets without the need for centralised intermediaries the likes of Binance or Coinbase. Users can also create pools on the protocol in eight supported tokens and add liquidity of any ratio in order to facilitate transactions.
Decentralised finance (DeFi) platforms have been gaining traction in the recent months mainly due to the ongoing market events. In 2022, various centralised crypto custodian platforms including Celsius Network, FTX, BlockFi and Voyager Digital collapsed after defrauding customers of their legitimacy. Most of these platforms attracted customers by claiming to be much more accessible than the complicated DeFi protocols. They also backed their arguments by saying that decentralised exchanges are more susceptible to attacks and puts users’ funds at risk. After these firms collapsed, they locked away customers’ assets claiming it for themselves and using those funds to finance their restructuring programs. Angry users have been filing lawsuits trying to get back their funds but with little or no luck as these platforms filed for Chapter 11 bankruptcy protection, under which they are allowed to pay off their debts by liquidating assets under management (AUM).
DeFi protocols do not custody users’ assets unless they are locked away in liquidity pools. In the case when a pool is attacked, investors will be reimbursed by the platforms as they are run by decentralised autonomous organisations (DAO) that are composed of founders, developers and token holders, who make decisions with the best interest of the community in mind.
According to decentralised finance analytics firm DeFiLlama, Balancer is the 11th largest DEX by trading volume and has $1.5 billion in total value locked on the platform. At the time of writing, BAL is trading at $5.42 – up by 2% in the last 24 hours.