Yearn Finance Suffers $1.4 Million Loss Due to Scripting Error
Decentralized finance protocol Yearn Finance experienced a setback when a technical scripting error led to the loss of $1.4 million from the protocol’s treasury. The incident occurred during a routine process to convert Yearn’s yVault LP tokens into stablecoins on decentralized exchange CowSwap.
Faulty Script Results in $1.4 Million Loss
- A faulty multisignature script caused Yearn Finance’s entire treasury balance of 3,794,894 lp-yCRVv2 tokens to be swapped, resulting in a $1.4 million loss.
- The error occurred while Yearn was converting LP tokens into stablecoins on CowSwap. Significant slippage resulted in a 63% drop in liquidity pool value.
- The affected funds were strictly protocol-owned liquidity from Yearn’s treasury. No user funds were impacted.
- Yearn has asked any arbitrage traders who profited from the mishap to voluntarily return a reasonable portion of the funds back to Yearn’s treasury.
- At least one trader has already returned $4,500. Yearn aims to improve security measures to prevent similar incidents in the future.
Coding Vulnerability Causes Liquidity Loss
A faulty multisignature script generated insufficient output checks and caps for the trade size, resulting in Yearn’s entire balance of lp-yCRVv2 tokens being exchanged at once. This triggered massive slippage and a 63% loss in value relative to the token’s spot price.
No User Funds Affected
While the loss was significant, it only impacted protocol-owned liquidity and not user funds. Yearn has appealed to arbitrage traders who profited from the incident to return a reasonable amount to the protocol’s treasury.
Traders Urged to Support Recovery
Opportunistic arbitrage traders took advantage of the slippage and acquired tokens at a discounted price, profiting from the market discrepancy. Yearn has directly appealed to these traders to voluntarily return some of their gains to aid in the protocol’s recovery.
One Trader Returns Funds
One trader has already returned 2 Ether (worth around $4,500) to replenish Yearn’s treasury. The team is implementing updated security practices and measures to prevent similar incidents in the future, such as separating protocol liquidity, enforcing readable automated messaging, and setting stricter slippage limits.
Yearn Finance Remains Credible Despite Setback
Despite the loss caused by a coding vulnerability, Yearn Finance maintains high credibility and usage within decentralized finance. The protocol had over $700 million in total value locked across its yield-generating lending products last year.
Hot Take: Yearn Finance Faces Costly Loss Due to Scripting Error
Yearn Finance suffered a setback when a scripting error resulted in a $1.4 million loss from its treasury. While only protocol-owned liquidity was affected, Yearn has asked arbitrage traders who profited from the incident to return some of their gains. One trader has already returned funds. The team is implementing security measures to prevent future incidents. Despite this setback, Yearn Finance remains highly credible and widely used in decentralized finance.
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