Reverse Rug Pull: Alchemix ‘Temporarily’ Increasing Fees to Cover $6.53 Million Shortfall in alETH Backing
The DeFi protocol suffered an incident due to an issue with the deployment script of the alETH vault. User funds are safe, and they can withdraw all of their ETH.
Decentralized finance (DeFi) protocol, Alchemix had an incident with its alETH contracts on Wednesday.
In response, the price of its token ALCX dropped 13% to about $457. As of writing, the $223 million token is trading around $500, down 32% in the last 7 days and 76% from its all-time high of $2,066 in March, as per Coingecko.
Alchemix currently has $1.4 billion of total value locked (TVL) in it, up from $550 million last week, as per DeFi Llama.
it was an inverse rug pull where Alchemix users got more money than they should, as a result, the protocol itself is ~2k ETH in debt
in talks to help get the debt managed asap🤝🤝🤝 https://t.co/yp7QO5DEot
— CL (@CL207) June 17, 2021
As per the report, at around 12:30 AM UTC on June 16, some Alchemix alETH vault users found that they had no outstanding debt even though they previously borrowed alETH at a 4:1 collateral ratio.
Additionally, the debt ceiling of almost 2,000 ETH was freed up to mint new alETH again. In response, the team paused the minting of alETH temporarily.
The root cause of the incident was an issue with the deployment script of the alETH vault, which accidentally created additional vaults; the Alchemist then used the wrong index in the array of vaults which caused the outstanding rewards to be calculated wrong, forcing the transmuter funds to be sent entirely to pay off user debts.
In order to ensure that it doesn't happen again, the team is redeploying a new Transmuter that correctly deploys a single vault at index 0.
According to the team, individual users can withdraw all their ETH, and the loss is limited to the backing of alETH only.
The team is now temporarily increasing the protocol fee that will fill the $6.53 million gap, and this revenue will go directly to add backing to alETH tokens. Some of the ETH from the treasury will be added to the Transmuter to add instant backing to alETH, and some DAI from the treasury will be sold for DAI as well for the same.