On Monday, Balancer fell victim to one of the largest exploits in decentralized finance (DeFi), which resulted in over $116 million in staked Ether tokens and liquidity pools being removed from Balancer v2 contracts and several forks.
A decentralized exchange (DEX) and automated market maker (AMM) investigated what appeared to be flawed access controls in its sharp contracts, which allowed attackers to withdraw funds directly from liquidity pools.
The exploit started with a loss of $70 million, which grew to $116 million, primarily affecting liquid stake assets such as wstETH Lido and osETH StakeWise.
In an attempt to make up for the losses, Balancer offered attackers a 20% white hat bounty. The team warned that it is working with law enforcement and blockchain forensics to identify the perpetrator.
Balancer came under scrutiny on Tuesday as community members drew attention to the extensive audits it had undergone, but was ultimately still hacked. “Balancer has passed over 10 audits,” said Suhail Kakar, developer relations manager at TAC blockchain.
The breach also showed signs of months of planning by a skilled attacker. Conor Grogan, a Coinbase executive, said the hacker appeared experienced and had funds potentially tied to previous exploits.
On Thursday, Balancer released a preliminary autopsy report following the $116 million hack. The log stated that it was affected by a sophisticated code exploit that targeted Stable Pools v2 and Stable Pools Composable v5.
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DeFi sleuths trace $284 million worth of loans and stablecoin risks linked to Stream Finance
In another blow to the DeFi market, decentralized protocol Stream Finance on Tuesday revealed a $93 million loss tied to a third-party fund manager. This event resulted in the depegging of stablecoins and a liquidity freeze across the ecosystem due to related assets.
DeFi analysts said the protocol’s demise reverberated throughout DeFi, causing millions of people to come into contact with the protocol’s synthetic assets. According to researchers at Yields and More, loans and stablecoins tied to Stream Finance’s xUSD, xBTC and xETH platforms amount to more than $284 million.
Dozens of interconnected credit markets, including Euler, Solo, Morpho and Gearbox, were found to be at risk via loops and stablecoin vaults, creating a risk of contagion across the DeFi yield ecosystem.
Funds such as TelosC and Elixir have emerged as some of the hardest-hit protocols, with Elixir’s $68 million exposure representing approximately 65% of its stablecoin reserves.
On Friday, Elixir withdrew its support for the deUSD synthetic stablecoin. The minutes stated that it had successfully processed redemptions for 80% of all deUSD holders, leading to the token losing its peg to the dollar.
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RedStone presents DeFi risk assessments
Oracle’s RedStone modular network has launched Credora, a DeFi-native risk scoring platform that integrates real-time credit and collateral analysis with protocols including Morpho and Spark.
RedStone aims to provide active risk scoring and default probability data via APIs. This marks a shift toward data-driven transparency after recent market volatility resulted in the loss of $20 billion in positions in October.
The move is part of a broader industry move toward a lower-risk DeFi ecosystem, where oracles, auditors and analytics firms converge to assess the stability of yield and security systems.
In addition to RedStone, Chainlink, S&P Global Ratings and Hacken have also signaled that the next wave of DeFi is based on verifiable creditworthiness rather than speculative yield.
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DeFi players form an alliance to promote Ethereum to decision-makers
A coalition of leading DeFi protocols has formed the Ethereum Protocol Advocacy Alliance (EPAA) to strengthen Ethereum’s political representation in Washington. The alliance includes Aave, Uniswap, Lido, Curve, Spark, Aragon and The Graph.
The protocols aim to offset the “excessive influence” of centralized crypto companies in shaping US regulations. The coalition plans to work directly with policymakers on the technical realities of decentralized infrastructure.
EPAA, also supported by the Ethereum Foundation, plans to develop educational materials, contribute technical expertise, and coordinate messaging on issues affecting noncustodial systems and DeFi governance.
The alliance seeks to ensure that onchain protocols, not just centralized projects, have a voice in defining the regulatory future of cryptocurrencies.
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Web3 Games, Leading DeFi Sector Activity in October
DeFi remained one of the most busy cryptocurrency sectors in October, despite an overall decline in Web3 engagement. According to a report by DappRadar, DeFi accounts for 18.4% of decentralized application (DApp) activity.
The data showed that DeFi TVL fell 6.3% to $221 billion and fell another 12% to $193 million in early November. DappRadar attributed this to a $20 billion liquidation in October and the subsequent collapse of Stream Finance.
Despite this, DappRadar reported that protocols such as Raydium, Pump.fun, and Jupiter Exchange continue to see forceful interest.
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DeFi market overview
According to data from Cointelegraph Markets Pro and TradingView, most of the 100 largest cryptocurrencies by market capitalization ended the week in the red.
Stables Labs token USDX (USDX) is down more than 69% on the week, marking the biggest decline in the last seven days. Then came a token called Paparazzi Token (PAPARAZZI), which dropped 54% last week.
Thank you for reading our roundup of the most significant events in DeFi this week. Join us this Friday for more stories, insights and education about this active space.
