The Decentralized Finance (DeFi) encountered its own contagion event this week after hackers exploited lending protocol Euler Finance, making away with $198 million in crypto.
It was a huge blow to the industry as Euler Finance has been considered the third-largest decentralized lender, only behind Aave and Compound.
The exploit, however, did not affect Euler Finance alone. Over ten DeFi projects were impacted thanks to the numerous integrations established since the lender began operations. Angle, Swivel Finance, Yield App, and many others disclosed their exposure to the attack.
The ability to connect lending platforms and various liquidity pools has been seen as a key pillar of DeFi. Developers call it composability. But the attack on Euler Finance and its impact on the more than ten protocols which had integrated with Euler Finance reveals the other side of composability.
Many users of the affected protocols felt blindsided by Euler Finance’s attack because most of them have little knowledge in regard to how DeFi protocols use each other.
Euler Finance Vulnerability Revealed
What caused the attack despite Euler Finance being audited by six different leading software auditing companies prior to the exploit?
It initially looked like numerous adjustments were made to the smart contracts that weren’t audited, hinting that these changes might have led to the platform’s vulnerability. However, Euler Finance explained that the external auditors approved the modifications, but unfortunately, the vulnerability wasn’t discovered during audits.
A Twitter account (@OfficersNotes) that reports news about crypto hacks questioned the capabilities of those external auditors, proposing the need for a standard auditing process in the industry.
How DeFi Performed During Banking Chaos
When Circle revealed it had USDC’s reserves locked up in Silicon Valley Bank, the stablecoin began to decline, reaching $0.88 last weekend.
Following the price drop, several degens borrowed USDT against ETH to buy the discounted coin and have emerged victorious since USDC is now trading at its expected price of $1.
Meanwhile, Maker’s DAI has seen a massive spike in its market cap despite being backed majorly by USDC. According to CoinGecko, the total value of the biggest decentralized stablecoin has gone from $4.9 billion to 5.7 billion over the past seven days.