Helio Money suffers collateral attack & $HAY depeg, Maple Finance takes a bad hit, MakerDAO clears bad debt and expands D3M to Compound…
Issue #18 of The State of DeFi Lending newsletter
Welcome to issue #18 of The State of DeFi Lending, a newsletter covering the highlights of lending markets in DeFi.
In this issue we cover
Helio Money’s oracle did not update the aBNBc price, now the protocol faces $15m of bad debt.
Orthogonal Trading defaults on $36m of unsecured loans on Maple Finance.
Following the RiskDAO governance proposal, MakerDAO has cleared all bad debt from the protocol. In addition, the protocol is expanding the D3M to Compound and reinstates the DAI Savings Rate at 1%.
Read below for more…
News
Helio Money, a Maker protocol fork on Binance Smart Chain, suffered a collateral attack that resulted in $15m of bad debt. The root cause of the attack was an oracle design that is now going to cost the protocol dearly.
Last week saw an attack on BSC-stablecoin $HAY, and its underlying Helio protocol. The exploit was preceded by an attack on staking protocol Ankr that saw the minting of 60 trillion aBNBc which is a reward-bearing receipt token for $BNB staked via Ankr’s platform on BSC. The freshly minted $aBNBc got dumped on PancakeSwap depegging the price from the underlying $BNB tokens.
Other attackers joined the exploit by buying large quantities of depegged $aBNBc on PancakeSwap and depositing them into Helio Protocol as collateral to borrow $HAY stablecoin. Helio’s oracle did not update the rate quickly enough, allowing the attackers to deposit overvalued collateral tokens.
$HAY was ultimately sold off and led to a USD depeg. Two attackers were able to cash in $19m in profits.
Helio could have prevented the attack by using the $aBNBc DEX prices for $aBNBc collateral but instead decided to reference $BNB prices for $aBNBc collateral. The infinite minting bug on Ankr was outside the control of Helio, but the oracle issue could have been prevented. Delphi Digital published a useful research report that discusses oracle design for staking assets last month.
Ankr has agreed to help restore the $HAY peg by buying excess $HAY in the market and sending them to a burn address. The buyback-&-burn was supposed to be finished by 6 Dec UTC+4 but requires more time.
In addition, Ankr also agreed to cover Helio’s bad debt.
Orthogonal Trading has defaulted on $36m worth of unsecured loans, originated via Maple Finance’s M11 credit pools. The trading firm has gone rogue and misrepresented their financial statements over the last four weeks. The bad debt accounts for 30% of all active loans across the Maple protocol.
Orthogonal Trading’s loans were borrowed from M11’s USDC & WETH credit pools and the trading firm got caught up in the FTX bankruptcy. Orthogonal Trading is a sister company of Orthogonal credit, which is also a Maple pool delegate.
Given the unsecured nature of these loans, there is very little collateral that M11 has recourse to: Orthogonal Credit has pool cover assets and there are also Orthogonal Credit pool revenues from now until closure. In total, M11 expects to recover $2.5m.
Insurance protocol Nexus Mutual also got caught in this default: The Protocol had deposited into M11’s WETH pool and now expects to lose 2,461 WETH (1.6% of total assets).
In addition to the Orthogonal default, the M11 WETH pool has a delinquent borrower (Auros) whose 2,400 WETH loan is overdue. It is not clear yet how much of this amount is at stake and the situation remains fluid.
These events are a huge setback to the unsecured lending sector and it remains to be seen if this primitive stands the test of time.
MakerDAO has executed the proposal to clear all bad debt off its books. This makes MakerDAO the only blue-chip DeFi lending protocol with nil bad debt.
The liquidations can be followed here:
The proposal to clear all bad debt had been initiated by members of RiskDAO who are also Recognized Delegates for MakerDAO.
It’s been a particularly busy year-end at MakerDAO with some new developments:
Maker’s D3M goes live on Compound and reaches its $5m debt ceiling.
The DAI Savings Rate is set to 1%.
The MakerDAO community is currently discussing to onboard Yearn Finance to its PSM. This would mean that USDC from the PSM is routed into Yearn vaults. This could lead to significant looping as liquidity can be deployed and recycled several times.