An algorithmic stablecoin created to hold a peg with the U.S. dollar, Balance Coin, has experienced a collapse of over 99% in the wake of an apparent exploit. The incident allowed an attacker to liquidate numerous Bitcoin-backed vaults and subsequently trade the assets for a profit.

At the time of writing, Balance Coin, the native stablecoin of the Balance Protocol, was trading at a value of $0.001358. This represents a stark drop from its previous price of $0.9954, according to data from CoinMarketCap.

The Exploit Explained

Blockchain security firm SlowMist provided analysis of the attack, which was integrated into reporting on July 22. The firm stated that the exploit originated from an attacker's manipulation of an "abnormally low" Binance Bitcoin (BTCB) oracle price. This manipulation triggered the liquidation of collateral within multiple BTCB vaults that should not have been vulnerable, which the attacker then used to swap for other assets to secure a profit.

In a more detailed statement, SlowMist described the method used in the attack. "A single-transaction combo exploited the missing price protection and liquidation delay in a Maker-style system," the firm explained, "allowing an attacker to liquidate multiple BTCB vaults using an abnormally low oracle price and profit from the arbitrage."

Financial Fallout and Protocol Background

Another blockchain security company, PeckShield, reported that the exploit inflicted losses amounting to $915,000 on 42DAO, which serves as the governance entity for the Balance Protocol.

Balance Protocol is a decentralized finance (DeFi) project that issues the Balance Coin. According to the project's GitBook documentation, the USD-pegged stablecoin is primarily collateralized by Bitcoin Cash.

This incident is the latest in a continuing series of DeFi exploits that have occurred this year. Attackers persist in targeting weaknesses in smart contracts, taking advantage of compromised administrative controls, and exploiting bridge vulnerabilities to drain funds from on-chain protocols.

At the time of publication, Cointelegraph had reached out to 42DAO for commentary on the situation.