DeFi Exploit

Trader uses flash loans to profit off lending protocol bZx

To view this email as a web page, go here.

February 17, 2020 ​​​​​​Decentralized finance (DeFi) project bZx on Friday announced on its official Telegram channel that there was an exploit executed against the protocol.  The hacker first obtained a flash loan of 10,000 ether (ETH) from dydx protocol. A flash loan is basically a loan without collateral and is valid as long as it is issued and paid back in one transaction. About 5,500 ETH were used as collateral to borrow 112 wrapped bitcoin (WBTC) on the Compound protocol and the remaining was sent to margin trading platform Fulcrum (built on bZx) to short WBTC.  At the same time, WBTC borrowed from Compound was dumped on Uniswap exchange, causing a price crash. The hacker then collected profits from the short on Fulcrum and paid off the initial flash loan, reportedly netting a gain of $353,000 in ETH.  While some observers are referring to the incident as a “hack”, it looks more like an arbitrage play of sorts with the trader borrowing ether to fund a short and getting extra leverage in a illiquid market.  That said, the arbitrage play has exposed the vulnerabilities of the DeFi sector.  “DeFi is the worst of both worlds. Most of DeFi can be shut down by a centralized party, so it’s just a decentralization theater and yet no one can undo a hack or exploit unless we add more centralization,” Litecoin founder Charlie Lee tweeted early Monday.  Meanwhile, DeFi expert Maya Zehavi noted that flash loans reduce costs associated with DeFi attack and stressed the need for protocols with inbuilt cricuit breakers.  Lending protocol bZx is scheduled to publish an official report on Feb. 17 at midnight UTC.  Today's Close Pivotal BTC: Price: $9,550 | Market cap: $174 billion | 24-Hr Volume: $47 billion Trend: Neutral Bitcoin produced a classic "doji" candle on Sunday, indicating indecision in the market place. The candlestick pattern weakened the case for a deeper price pullback put forward by Saturday's 4.5 percent drop, the biggest single-day decline since November.  The doji candle's high and low of $10,051 and $9,598 are now reference points for future breakouts. A close above $10,051 would imply an end of the pullback from recent highs above $10,500 and shift risk in favor of a re-test of that level.  Alternatively, acceptance below $9,598 would mean the period of indecision, as represented by the doji candle, has ended with victory for the bears. In that case, a stronger downside move toward $9,075 (Feb. 4 low) could be seen.  Currently, prices are trading below $9,598. The breakdown, however, would be confirmed only if the sellers are able to secure a UTC close below that support. That looks unlikely with the daily chart showing an impending golden cross, a long-term bullish indicator. The weekly chart indicators are also biased bullish.  Read Analysis In this feature of the Markets Daily newsletter, we aggregate news, reports, ideas and tweets relevant to crypto traders and investors. Why Doesn't Nike Accept Cryptocurrency Payments?​​​​​​​ (Hackernoon) Big and small merchants alike don’t want to deal with two key hurdles of accepting cryptocurrency as a payment method: Volatility & Security. Exploit During ETHDenver Reveals Experimental Nature of Decentralized Finance​​​​​​​ (CoinDesk) A $350,000 hack casts light on the problem of depending on single price oracles. How charities are using crypto to feed the world​​​​​​​ (Decrypt) From South America to Africa, crypto charity projects are revolutionising aid donations and impact.   Mind the Gap: Why ETH Price and DeFi Adoption Aren’t in Sync (CoinDesk) When ether prices are falling, the amount of ETH locked in DeFi tends to rise. Most recent data indicate the relationship operates the other way, too. ​​​​​​​ Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments. Copyright © 2020 CoinDesk, All rights reserved.  Our mailing address is:  250 Park Avenue South New York, NY, 10003, US  Want to change how you receive these emails? You can update your preferences or unsubscribe from this list