Crypto Hacks and Scams — #2 on the list
You own, invest, and stake your crypto to develop your wealth, but this Web3.0 ecosystem, although transparent, is completely unregulated. It is the ”Wild Wild West” — everyone is fending for themselves. So how do you ensure that someone else cannot simply take your digital finances without peace of mind that you could get it back? Insurance. Community. Period.
We have encountered many who ask “what is the real need for an insurance token?”, “why would I need such a protection for my “de-finances”, given the various wallet security measures, mnemonic/recovery phrases and authentications protecting my wallets or holdings?
Well, the fact is, one of life, that there is always a risk and these risks are especially pronounced in the unregulated Web 3.0 ecosystem.
So let’s take a brief look at some fairly big hacks and scams documented by Rekt and how they were executed, and you might then just think again:
At #2: ~$147,000,000 (at least $102m) of excess COMP “leaked” from COMPOUND Labs Vault.
Reason for loss?: On September 29, 2021 COMPOUND Labs executed a governance protocol proposal, entitled ‘Split COMP rewards distribution’, to introduce “dynamic token reward distribution” and to “fix a few bugs” by changing the protocol’s ‘comptroller logic’.
Unfortunately (or “fortunately” for some COMP redeemers…), ~$147,000,000m worth of excess COMP rewards became suddenly redeemable. The root of the exploit contained within the vulnerable code change proposal (that was was checked by COMP’s team prior to execution) was explained by a Twitter commentator as,
“Smart contracts are unforgiving of the tiniest errors...COMP bug is a tragic case of ">" instead of ">=" (in two code locations).”
This vulnerability allowed early withdrawals of overly inflated and wrongly-distributed COMP rewards. By the time latecomers arrived for share of the rewards, the vault had been “dripped” of millions worth of COMP and only small pickings were left. After a few days of tension, a supplementary Governance proposal was proposed to the community to disable the COMP rewards distribution to stop the flood of losses, although this took time in order to execute (due to Governance protocol).
The initial $80million of excess COMP sent as rewards plus $22million of COMP claimed by holders after the drip results in at least $102,000,000 of COMP being lost, with a majority being directly transferred to DEXs and exchange for other crypto. Upwards of a further $45million of COMP was still up for grabs and it is unclear how much was actually lost in the debacle. Since the event, less than half of the lost COMP tokens were returned by community members.
While this event had a relatively “small” impact on token holders, who suffered faster token dilution than expected and slight token devaluation, it did leave a relatively large mark on the COMP community and DeFi community in general, regarding community leadership, logic and governance protocol quality control and fairness of token distribution.
Interestingly, the event triggered quite an emotional response from COMPOUND Labs founder, Robert Leshner, which has since received a lot of attention. It also reminded us how “new” the Web 3.0 space is, how “wild” crypto can be and how important it is that even larger, established projects have distributed secure funds for optimal stability of portfolios, funds and most importantly, healthy decision-making of all people involved in DeFi communities.
So, what are potential risk mitigation methods for individual token holders to well-established DeFi projects in order to avoid the consequences of such events? Well, DeFi insurance is one sure way that your defi investments, portfolios and projects are supported and compensated, if need be, by a trusted, distributed, secure and transparent community.
Nobody’s de-finances are 100% safe in the current wild web 3.0 crypto space. Insure with #SURE.
Be part of the inSure DeFi community.
About inSure DeFi
inSure DeFi is a Decentralized Insurance Ecosystem, partnered with Chainlink, trusted by thousands of community members to protect their crypto portfolios from scams, exchange closures, and drastic devaluations. inSure DeFi provides insurance solutions for the crypto space to stabilize and secure Crypto & DeFi portfolios.
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