Prominent crypto personality and Litecoin founder Charlie Lee recently railed on DeFi after a vulnerability was exploited on one protocol over the weekend. Here’s why he is wrong, and DeFi is here to stay.
DeFi Protocol Exploited
Unfortunately for decentralized finance platform bZx, their Fulcrum exchange was temporarily exploited while the team was due to present at the weekend’s ETHDenver conference.
At the time of writing bZx was still having issues with flash loans and they are getting worse.
We have hit the pause button on the protocol again in light of suspicious transactions using flash loans and trading on Synthetix.
— bZx (@bzxHQ) February 18, 2020
Another #flashloan trade.
Profit 2378 ETH = $640,000 at current prices.
Quasi-instantaneous risk-free profit. https://t.co/Tj9HQ7xLsP
— Alex Krüger (@krugermacro) February 18, 2020
It all began over the weekend when a trader managed to exploit a low liquidity Uniswap market in order to make one single transaction to net a profit of around $350,000.
Crypto industry insider Ryan Sean Adams has delved into how this was achieved in his latest blog. In short, the DeFi pirate borrowed $2.7 million of ETH for 15 seconds from DyDx and shorted wBTC using a 5x margin on Fulcrum.
wBTC, or wrapped bitcoin, is a low liquidity ERC-20 token which is backed by BTC. This enabled him to manipulate the market price on Uniswap, a decentralized on-chain protocol, to profit from the flash loan.
RSA looked at the positives from this adding that ‘DeFi is leveling up’ just by the premise that such a transaction was even achievable. He added that attacks are easy on low liquidity assets such as like wBTC so having high economic bandwidth assets,