Hacks have plagued the cryptocurrency space over the years. Hacks that happen on a protocol are the most devastating because they cause millions of losses for traders. With these hacks, there is always a question of how users will be compensated or how the protocol will recover lost funds.
For instance, the Acala stablecoin was hacked recently, where almost 2 billion aUSD tokens were erroneously minted by a hacker. The team swiftly responded to burn the minted tokens before the hacker could redeem them, which allowed aUSD to reattain its peg and minimize investor losses.
However, not all cases are the same. The Fei protocol was hacked on April 30 via a reentrancy attack. $80 million worth of tokens were lost following the event. Nearly four months after it happened, the protocol’s founder has come up with a recovery plan that has elicited mixed reactions from the community.
Fei reimbursement proposal faces criticism
The Fei protocol seems to be ready to shut down its doors. However, the proposal tabled to reimburse the victims of the $80 million hack has been heavily opposed by the early investors. The proposal plans to partially repay the victims of the hack and compel the Fei holders to redeem their tokens for the DAI stablecoin.
The proposal was tabled on Friday last week, and shortly after, the crypto community elicited mixed reactions. The founder of Frax Finance, Sam Kazemian, also an early backer of the project, has said that the proposal is “a new low for DeFi.”
Other critics have also said that the Fei protocol has ample funds to reimburse everyone that lost funds because of the hack fully. The partial reimbursement proposal could now mean that the project will retain most of the remaining capital for the project.
The protocol is also looking for a way ahead for the project to reduce risk. One of the ways to do this is to defend the FEI peg without using governance. However, the shutdown of the proposal could not necessarily mean that the Fei protocol will not make a comeback. Beanstalk Farms reopened its services four months after shutting down after a $77 million exploit.
Fei’s hacking woes
The Fei protocol was launched during the summer of 2021. The protocol launch was marked by a contract bug that caused the FEI stablecoin to lose its peg. At the time, rewards for minting new FEI tokens were removed, while users that attempted to sell FEI below $1 were fined.
However, Fei has also been successful in its foray into the decentralized finance (DeFi) sector. The project raised a staggering $1.3 billion in Ether tokens deployed as FEI-ETH liquidity on Uniswap, one of the best DeFi exchanges, making it the largest pool on the exchange at the time.
In 2021, TribeDAO, the parent organization for the Fei protocol, merged with Rari Capital, a DeFi lending platform. On April 30, Rari faced a re-entrancy attack that led to an $80 million worth of tokens loss from the platform’s lending pool.
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