DeFi Linear Finance Exploit Collapsed LUSD Stablecoin

Linear Finance, a DeFi protocol, suffered a major security breach, resulting in the complete draining of its LUSD token's liquidity on PancakeSwap and Ascendex.

Sep 22, 2023 - 12:37
Oct 19, 2023 - 14:23
DeFi Linear Finance Exploit Collapsed LUSD Stablecoin
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Linear Finance, a Hong Kong-based decentralized finance protocol, recently fell victim to a significant security breach. This breach led to the complete draining of its Linear USD (LUSD) token's liquidity on two major platforms: PancakeSwap and Ascendex.

The exploit was executed with precision. The attacker identified and exploited a vulnerability that allowed them to mint an infinite supply of LAAVE tokens. After minting these tokens, they were exchanged for LUSD on the Linear Exchange. The final step in this malicious act was the liquidation of these tokens on PancakeSwap and Ascendex, leading to the drastic fall in the token's value, plummeting its price to zero.

Recognizing the severity of the attack, Linear Finance took immediate action. The protocol temporarily halted all contracts that enabled token minting, burning, or exchanging. In a bid to demonstrate transparency and proactiveness, the LUSD Linear bridge contract was disabled. The team at Linear Finance also began actively tracking the attacker. They shared the wallet addresses associated with the exploit to major exchanges and legal authorities.

The team's official statement emphasized their dedication to make this right. They mentioned:

“Wallets known to have taken part in the exploit have been shared with all major exchanges and authorities. Restoring the protocol and un-doing the damage for our users will be our highest priority until the issue is fully resolved.”

The consequences of this exploit were far-reaching. According to DeFiLlama, Linear Finance's total value locked hovered around $8 million. Interestingly, this value didn't seem to take a hit post-exploit. However, the same couldn't be said for the protocol's stablecoin. The LUSD stablecoin, which was pegged to the US dollar, collapsed to zero as its liquidity pools were drained. 

LUSD Marketcap Crash (Source: CoinGecko)

In a surprising turn of events, the protocol's LINA token seemed to remain unaffected by the exploit. At the time of writing, LINA was trading flat at $0.011. Despite the recent exploit, the DeFi token had gained 3.5% over the past week, although it was still down 96% from its March 2021 peak of $0.298.

Philip Bohmer Philip is a seasoned journalist that brings clarity to the complex world of cryptocurrencies through his articulate and insightful articles. His passion for blockchain technology fuels his writing, making him a trusted voice in the rapidly evolving digital currency landscape.