Over $1M In ETH-Based Tokens Locked On A Compound Finance Fork, Percent Finance, Due To Developer Error

  • A Compound Finance fork sees over $1 million in Ethereum-based tokens froze on a smart contract as the decentralized finance ecosystem risks become clear once again.
  • The permanently locked funds originated from an update on the platform’s smart contract interest.

Percent Finance, a lending protocol forked from the Compound blockchain, announced on Thursday that over $1 million in ETH-based tokens are permanently locked in part of its smart contracts after a code change error by developers. The statement on Medium reads,

“We have to inform you that some of our money markets experienced an issue that can result in permanent locking of user funds.”

An error while changing the interest rate model update saw three token contracts affected, including Wrapped BTC (wBTC), Ethereum (ETH), and Circle’s stablecoin, USDC. The locked smart contracts hold the net amount between the amount supplied and borrowed by users totaling 28 wBTC, 313 ETH, and 446,000 USDC tokens.

At current market rates, the total value of assets locked on the smart contracts totals to $1.1 million, with the statement claiming “approximately 50% belongs to community mod team wallets”. The development team has stopped the supply, borrow, repay or withdraw functions for the tokens.

Other money markets remain operational, allowing users to pay back their loans but are cautioned against borrowing on the platform.

The developers’ error

In a Twitter thread on their page, PercentFinance explained that developers who copied the code from Compound during the fork used the old Compound smart contracts on the wBTC, ETH, and USDC money markets instead of the newer and better code. The contracts were signed with old CToken signatures, which are not compatible with newer styles – meaning the new contracts could not accept transactions from these old contracts hence “bricking” the funds.

The developers took fault for locked funds and are currently looking for solutions to return their customers' funds. As for USDC and wBTC, their contracts have backdoors that could allow the development team to retrieve the locked funds. However, this would involve speaking with the issuers of both coins – Center and BitGo – and reaching a definitive plan to return funds to users.

Any way back?

These firms could blacklist the addresses that hold the locked funds and burn them out of the system, then re-issue new tokens to the owners of the blacklisted tokens. However, a Center spokesperson speaking to Coindesk confirmed that the USDC-minting firm could only carry out such a measure if an eligible court gives an order.

However, ETH users are not as lucky as the blockchain's decentralized, and immutable nature means the tokens may never be unlocked. The team is, however, working on other ways to ensure every cent is returned. The statement reads,

“Unfortunately, it seems the locked ETH may be irretrievable, but we are currently working on potential scenarios to make affected users whole.”

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