This could be called a November nightmare for crypto. The DeFi Balancer protocol has been mined to the tune of $128 million. Additionally, Stream Finance announced a $93 million loss, leading to the delisting of its xUSD stablecoin. Both occurred on November 3.
Decentralized finance is exposed to risks that can lead to other systemic problems. And these problems could be serious: more than $150 billion worth of value is currently locked in DeFi.
Which begs the question: To what extent does the loss of over $220 million in one day call into question the long-term risks that DeFi poses to the crypto ecosystem?
Several experts told BeInCrypto that smart contracts are likely the main culprit of the Balancer Hack.
“From a technical perspective, these attacks came from vulnerabilities in the smart contracts themselves, which the hackers exploited to drain liquidity pools,” said Tim Sun, a senior researcher at financial services firm HashKey Group. “This highlights a deeper problem: even mature, previously audited protocols remain at risk under complex contract structures.”
Smart contracts, which are self-executing functions that allow DeFi to operate autonomously, are still relatively new.
It was only with the release of the Ethereum network in 2015 that programming smart contracts on a blockchain became possible. The smart contract industry itself is expected to grow 10x over the next decade.
The global smart contract industry is expected to reach nearly $15 billion by 2033. Source: Market.us
Additionally, various functions of the protocols require smart contracts to work together in tandem, a term in the industry known as “composability.”
Essentially, smart contracts are like monetary Legos. Each contract is a piece of Lego or a building block that powers a DeFi protocol. So, systematic problems can arise if the foundations are not strong.
“The Balancer exploit is another reminder of how DeFi’s composability, its greatest strength, also creates complex interdependencies that amplify risk,” noted Mark Peng Zho, general partner at crypto-VC firm Mireafund.
The biggest difference between Balancer’s feat and Stream’s losses is what happened to both projects afterwards.
“In the case of Balancer, the protocol was able to absorb the initial impact of the exploit and continue operating while the team implemented a recovery plan,” said Natalie Newson, principal investigator at blockchain security firm CertiK. “In contrast, Stream had to stop operating due to insolvency and, given that the project had borrowed assets from several other platforms, the impact was felt on a much larger scale.”
