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About $ 1 million worth of Ethereum tokens is locked into a new DeFi app after its developers made changes to the protocol’s interest rate smart contracts.
Lending platform DeFi PercentFinance, a fork of Compound Finance, wrote in a blog post on November 4 that “some [its] the money markets have encountered an issue that can result in the permanent freezing of user funds. ”The team froze the money markets specifically for USDC, ETH and bitcoin wrapping (WBTC).
Currently 446,000 USDC, 28 WBTC and 313 ETH are frozen, valued at approximately 1 million dollars. Half of these real estate funds belong to PercentFinance’s “community mod team,” according to the post. Withdrawals for other markets are open, but the team urges users not to borrow from any of PercentFinance’s markets in the meantime.
Read more: The supply of tokenized bitcoin on Ethereum now exceeds $ 1.1 billion – here’s why
The error
In a Discord discussion of the vulnerability, Vfat, a developer of Ethereum and PercentFinance, said the developer who forked PercentFinance from Compound Finance used “old Compound contracts instead of … newer and much better versions.”
Vfat has moved to update some of these smart contracts, especially those that manage the interest rates for the platform’s loans. After Vfat finalized the changes and implemented them, he realized that the signatures for the old contracts and the new contracts were incompatible, so the transactions could not be signed.
“The old and the new interest rate model have different function signatures on all of these important functions,” he said in Discord chat. “Essentially the token contract is trying to find an interest rate function that doesn’t come out, so it always fails on every interaction.”
Vfat also said in the chat the “Compound [team has] confirmed that this means that the contract is in masonry. “
The appeal
In direct messages with CoinDesk, Vfat said it is still too early in the recovery process for a definitive plan, especially considering that no one has yet had a chance to speak to Center or BitGo, the issuers of the USDC cryptocurrency and the WBTC token, respectively. .
Since USDC and WBTC have backdoors in their smart contracts, these issuers would be able to blacklist addresses with blocked funds (even if they are already inaccessible, Vfat said this would be a good “extra precaution”). After the blacklist, BitGo and Center could then reissue new tokens to old token owners, something that Tether did for a trader who mistakenly transferred $ 1 million in USDT tokens to the wrong address.
Read more: Tether still dominates Stablecoins, but USDC and Dai are winning DeFi
A representative of the Center told CoinDesk that the company can interfere with USDC transactions only if it receives “a valid and binding court order from a competent US court that has authority over the Center.”
BitGo representatives were unavailable for comment at press time.
For other recovery efforts, Vfat said an early-stage proposal suggests launching new contracts for the USDC loan markets. Although 27% of the loans are locked into old contracts, these new ones would allow borrowers to repay the rest of their loans, then recover their collateral and repay lenders 73 cents on the dollar.
All, 100%, the WBTC of the PercentFinance lending platform is blocked, so without BitGo’s cooperation those funds are lost to the air. Likewise, 100% of PercentFinance’s ETH funds have also been frozen and there is no practical way to recover these funds.
“Regardless of this haircut procedure, I take responsibility for the full amount of these losses and will do everything possible to make everyone 100% whole,” Vfat told CoinDesk.
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