Anchor Protocol Glitch Liquidates Millions as Anchor Community REJECTS repaying funds
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Anchor Protocol WAS touted as TerraLabs flagship protocol and the be all to end all of Decentralised Finance (De-Fi) with a suite of products from an impressive 20% APY on Terra's stable coin UST. To the ability to loan out Ethereum and Luna by minting bLuna or bEth and than borrowing against your deposit for UST and placing it into savings for those high yields.
For many Anchor Protocol was an amazing addition to the world of Decentralised Finance and a clear winner for TerraLabs on ensuring it met it's goal of being a Crypto Bank.
Infact Anchor Protocol has been so successful that it has been the main driver to UST success and at current over $US10 Billion dollars is locked away earning that magic APY Source
The Multimillion Dollar Glitch
However, on 9 December 2021 a glitch in Anchor Protocol's coding caused one of the largest liquidations known to be caused from a failed system.
The Anchor Protocol Price feeder mismanaged the price of bLuna which is the minted version of Luna which is loaned out. The price of Luna at that time was $US66.10. However, the price feeder was registering a price far lower at $US58.44.
The mismatch in actual Luna price Vs the price the feeder that Anchor uses to ensure its systems are running correctly caused 239 users whom were providing bLuna and bEth to be liquidated for just over $US46 Million Source.
Community REJECTS reimbursement
After significant community back lash at the liquidations Anchor investigated the cause of the problem and are upgrading their systems to ensure it doesn't happen again.
Their suggestion of resolution was to effectively leave it up to the community to come up with a proposal to reimburse those impacted and make good on the code error.
The proposal was submitted and unfortunately the Anchor governance community voted NO at an alarming rate which in my opinion is theft Source
No Response From Anchor Protocol
I reached out to Anchor Protocol in their official Discord channel but unfortunately did not receive a response in time for the publication of this article. If I receive a response in the future I will update the article accordingly.
Image Sourced Anchor Discord Current community concern is around the depletion of the Treasury funds which are used to pay the current high APY. Some users are anticipating TerraLabs will bail out Anchor if the Treasury runs dry as one user stated this is what occured previously.
The issue that occured on 9 December 2021 is a stark reminder of the dangers of Decentralised Finance and the use of community governance proposals.
It is quite clear that over 200 users to a tune of $US46 Million were wronged and now the project that has wronged them have refused to refund their positions despite the users in good faith supporting the Protocol. While those who arbitrage liquidations profited significantly and effectively received free funds for no reason.
News of which once out in the public will have significant consequences for Anchor Protocol.
The question on everyone's mind is, Will Anchor and TerraLabs survice such a large fault in their system and regain community trust?
Image Sources provided supplemented by Canva Pro Subscription. This is not financial advice and readers are advised to undertake their own research or seek professional financial services.
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