The aUSD stablecoin has become the latest stablecoin to take a hit after a hack into the Acala Network resulted in a 99% drop in its value.
Acala Network Hacked
On Sunday, the Polkadot-based DeFi network Acala was exploited by hackers, who infiltrated and then issued around 1.2 billion $aUSD tokens. This caused the native stablecoin of the network, Acala Dollar or the aUSD, to lose its dollar peg and drop in value by 99%. Within just a few hours, the coin dropped to $0.58 in the early hours of Sunday, August 14.
The exploit was first spotted by Twitter user, 0xTaylor_, who revealed that the hackers exploited a bug in the iBTC/AUSD pool.
Soon after, the Acala Network also acknowledged the attack. The official Twitter handle of the team tweeted,
“We have noticed a configuration issue of the Horizon protocol which affects aUSD. We are passing an urgent vote to pause operations on Acala, while we investigate and mitigate the issue. We will report back as we return to normal network operation.”
Team Freezes Funds, Maintenance On Track
Since then, the team has been simultaneously working on the matter and updating the community on Twitter. Soon after putting the network in maintenance mode and blocking transfers, the Acala team was able to identify the issue in the iBTC/AUSD pool that resulted in error mints of the significant amount of aUSD. The team updated the community that the misconfiguration has been fixed, and the wallets receiving the erroneously minted aUSD have been identified. The team followed that up with an update that 99% of the erroneously minted aUSD is still on the Acala parachain, and only a small 1% of it has been converted to ACA and other tokens on the parachain. The team also requested whitehat holders and recipients of the erroneously transferred tokens to return them to specific wallet addresses.
Is Acala Truly Decentralized?
In an interesting turn of events, certain community members, specifically hardcore DeFi-heads, have questioned the levels of decentralization in the protocol as it was able to freeze the funds and halt operations so quickly. The network emphasized its decentralization when it tried to boost the aUSD stablecoin in March 2022. Since it claimed that aUSD is a censorship-resistant stablecoin, the question remains – why was the decision to freeze funds not taken to governance? Since Acala decided to freeze assets centrally, could the protocol still identify itself as decentralized?
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.