The Acala hack saw over a billion aUSD stablecoins minted from thin air, but now community members are scratching their heads wondering how a decentralized protocol would handle the clean up.

The Acala Network’s USD stablecoin depegged by over 99% over the weekend and forced the Acala team to pause a hacker’s wallet, raising concerns about its claim of being decentralized.

On Aug. 14, a hacker took advantage of a bug on the iBTC/aUSD liquidity pool which resulted in 1.2 billion aUSD being minted without collateral. This event crashed the USD-pegged stablecoin to a cent, and in response, the Acala team froze the erroneously minted tokens by placing the network in maintenance mode.

The move also halted other features such as swaps, xcm (cross-chain communications on Polkadot), and the oracle pallet price feeds until “further notice”

While the move to put the network in maintenance mode and freeze funds in the hacker’s wallet may have been meant to protect users and the network from any further harm, proponents of decentralization have cried foul.

Acala is a cross-chain decentralized finance (DeFi) hub that issues the aUSD stablecoin based on the Polkadot (DOT) blockchain. aUSD is a crypto-backed stablecoin which Acala claims is censorship-resistant. iBTC is a form of wrapped Bitcoin (BTC) which can be used in DeFi protocols.

Community members have noted the irony of Acala’s claims about aUSD’s censorship-resistance since the protocol froze funds so swiftly. Twitter user Gr33nHatt3R.dot pointed out on Aug. 14 that decisions "would have to go to governance to be 'decentralized' finance."

If Acala centrally controls that decision is this really DeFi?

A member of the project’s Discord channel usafmike proposed rolling back the chain to reverse the token mints altogether, but was challenged by skylordafk.dot, another member who said such an action would “set a harmful precedent.”

As of the time of writing, the network was still in maintenance mode to block all token transfers, but the team confirmed that the bug had been fixed. The wallets that received erroneously minted aUSD have been identified, and 99% of them were still on Acala which leaves the possibility that they may be retrieved by the community if it votes to do so.

The Acala exploit is the second major one in a week as Curve Finance (CRV) experienced an attack on its front end on Aug. 9 which directed users to approve a malicious contract. Acala’s problem differs from Curve’s as the latter’s pools were not compromised as users who directly interacted with its smart contracts experienced no issues.

aUSD is the latest stablecoin to lose its peg in the past few months, starting notoriously with Terra USD (UST) in May, which has since been renamed to Terra Classic USD (USTC). Other notable depegs include Tether (USDT) and Dei (DEI).

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Cryptos feed Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Polygon’s environmental conservation reaches oceans

Polygon’s environmental conservation reaches oceans

The crypto industry has been in the crosshair of many environmentalists as the process of transaction verification and block generation tend to be power-consuming. MATIC continues to tread below the uptrend support line.

More Cryptocurrencies news

Why the MATIC price could fall toward $0.60 in October

Why the MATIC price could fall toward $0.60 in October

MATIC price has rallied 20% since the middle of September. Polygon price faces significant resistance near the upper bounds of a descending trend channel. Invalidation of the bearish thesis is a breach above $1.05.

More Polygon news

XRP price is setting up for a sharp decline toward $0.40, here's why

XRP price is setting up for a sharp decline toward $0.40, here's why

XRP price could witness a sell-off into the mid $0.40 levels if the bulls hurdle through the $0.50 barrier. XRP's failure to maintain momentum over the $0.50 threshold may result in Ripples' demise. Invalidation of the bearish thesis is a breach above $0.51.

More Ripple news

MakerDAO allocates $500 million in DAI toward US Treasuries and Corporate Bonds

MakerDAO allocates $500 million in DAI toward US Treasuries and Corporate Bonds

Partnering with Monetalis, MakerDAO will be using its stablecoin reserves to invest in US Treasuries and corporate bonds. $1 million has been set for the pilot transaction, following which the debt ceiling will rise to $250 million and $500 million.

More Cryptocurrencies news

Bitcoin: BTC’s Q3 close and what to expect in Q4?

Bitcoin: BTC’s Q3 close and what to expect in Q4?

Bitcoin price has developed a bullish divergence with RSI, hinting at more upside. Despite the optimistic technicals, investors should expect volatile swings before the end of the third quarter of 2022. 

Read full analysis

BTC

ETH

XRP