Acala stablecoin recovers dollar peg following burning 1.29 billion exploited aUSD

    17 Aug 2022

    Polkadot’s DeFi protocol Acala is struggling to edge back its native stablecoin aUSD to the dollar peg after the community voted to burn 1.29 billion of aUSD. Following a smart contract exploit that dropped the aUSD’s value, a new governance vote aims to bring the token back to its peg.

    These “extra” tokens were minted due to exploiting a “misconfiguration” in one of Acala’s liquidity pools. Once attackers exploited the flaw, the mass minting of the stablecoin dropped its value. As a result, the coin de-pegged and plummeted to an all-time low of $0.0054 on August 14.

    Acala paused network trades following an urgent governance vote. The team will start on-chain tracing and encouraged those who “errorneously minted aUSD or swapped token from these aUSD that are not on Acala,” to return them to the tweeted addresses.

    Acala subsequently confirmed that the bug has been fixed: “The misconfiguration has since been rectified and wallet addresses that received the errorneously minted aUSD have been identified.”

    Meantime, the stablecoin has surged 10,158% over the past 24 hours and is trading at about $0.93 for now, according to Coingecko.

    The recovery comes after a new burn scheme that the Acala community voted on August 15. The proposal sought to burn the 1.29 billion aUSD tokens held by 16 wallet addresses involved in Acala’s newly-launched iBTC/aUSD liquidity pool smart contract exploit.

    About 95% of voters accepted the proposal, and a meager 5% opposed it. After its acceptance, the proposal was executed early on August 14.

    “The recently passed community governance referendum has now been executed,” Acala tweeted. “1,292,860,248 erroneously minted aUSD have been returned to the honzon protocol and burned.”

    Nearly 99% of the erroneously minted aUSD that remained on Acala were burned from exploiters’ wallets, according to a trace report. Due to the burn event, aUSD regain its dollar peg rapidly.

    The team is still in the process of recovering the remaining 1% of tokens, which were swapped or moved to other parachains. Still, Acala parachain remains paused.

    Despite reverting the mass-minting of aUSD, many in the Acala community raised concerns around the project’s ability to pause the parachain amid the chaos.

    “I realize that this is done with good intent, but this is a slippery slope,” a user tweeted, raising concerns surrounding Acala’s operations, while another user said on Acala’s discord:

    “I agree it is a good thing to fix the problem hurting normal users and not letting the hackers get away with anything; that being said, I also don’t want to see some proposal to take my or any other normal user’s money or rights by the voting of some crowd.”

    Acala’s aUSD is not the only stablecoin that has dramatically depegged lately. In May, the collapse of Terra’s algorithmic stablecoin UST wiped out billions of dollars in value in a matter of days, drawing regulatory attention from around the world. Unlike UST, Acala’s aUSD isn’t an algorithmic stablecoin but claims to be multi-collateralized and backed by assets including DOT, KSM, ACA, KAR, BTC, and ETH.

    Following the implosion of Terra’s UST, other stablecoins slipped from their dollar peg, including hybrid algorithmic stablecoin DEI, which now changes hands under 20 cents. Even the world’s largest stablecoin, Tether, wasn’t immune to the contagion, dropping to as low as $0.95 before recovering.


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