Navigating the Aftermath: Dealing with the $12M Curve Exploit Loss in Crypto Lending

An eerie, cinematic cityscape shot at dusk set against the backdrop of a crypto network illustrated as intertwined metallic structures. The central focus, an embellished, glowing, but cracked fountain spouting gold coins symbolizing a wealthy lending app. Shadowy figures lurking in the background, along the sides of the structure, representing exploiters. In the foreground, a line of repetitive humanoid shapes, differentiated by an opalescent filter, imitating investors, who bear the outcome of the crisis. Looming over it all, a expressive, mottled sky painted in deep blues and purples, casting an ominous, cautionary mood over the whole scene.

A recent calamity has exposed how even the most dynamic and progressive areas of crypto, like NFT-backed loans, can also be vulnerable. JPEG’d, an NFT-collateralized crypto lending app, fell prey to a Curve exploit losing nearly $12 million in crypto. To mend the situation, JPEG’d agreed to cough up a 611 ETH ransom, leading to 90% of the lost assets’ recovery. Despite this brave and swift move ensuring the majority of their customers from complete wipeout, it begs the question of who will shoulder the missing 611 ETH which equates to approximately $1 million.

In an aim to address this quandary, investors in the JPEG’d DAO have been presented with six proposals, which cleverly shift the burden to different parties. Option D, currently the likely solution, proposes distribution of the pain between non-paying customers of JPEG’d and the DAO itself. This implies that pETH price speculators and yield farmers who refrained from depositing into Curve via JPEG’d in-house service, rightly named Citadel, will receive the majority of their money back, but certainly not all. Notionally, it has been said that Citadel users who paid a small fee to earn interest in a Curve pool will be reimbursed entirely.

This solution inevitably leads to a stinging net loss of approximately $1.3 million to the DAO, calculated from a loss of 484 ETH (about $802,000) and 861 million JPEG tokens (about $450,000). As part of the recovery and transparency plan, it is also reported that JPEG’d is planning to replace pETH with a new token derivative that will be airdropped to all holders.

While it appears to be an ‘in-between’ solution, given the circumstances, it’s pragmatic. The community desired to shield paying customers as much as possible, resulting in this unanimous disposition. However, the Curve exploit serves as a stark reminder of the vulnerabilities that exist within the realm of cryptocurrency and blockchain technology. While the technology promises immense opportunities, proper implementation of protocol systems and diligent risk management is essential. Thus, the audacious move by JPEG’d to pay the ransom and attempt a return to normalcy, has shed light on the significant element of risk in the crypto entrepreneurial space. It remains to be seen, how this event shapes rules, regulations, and risk assessment in the future.

Source: Coindesk

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