In recent events that shed light on the precarious side of decentralization, Magnate Finance, a lending/borrowing platform on Coinbase’s layer 2 protocol Base, drained its users of an approximate $6.5 million. As reported earlier by blockchain investigators like ZachXBT, a significant exit scam was seemingly in the making. It stemmed from the actions the project’s founders took to virtually erase their digital footprint, an act that triggered alarm bells.
The modus operandi involved Magnate Finance getting rid of their Telegram group, website, and their X account. This sudden vanishing act raised eyebrows, prompting watchers to warn of an impending exit scam. Further investigation revealed concerning links between the Magnate Finance deployer address and a previous $4.8M exit scam involving Solfire.
The plot thickened when, within a matter of hours, the project developers manipulated the Price Oracle protocol and removed all the assets. This action resulted in a catastrophic loss, amounting to the total value locked in the protocol – a staggering $6.4 million.
Blockchain analytic firm Peckshield traced the fund movement to five different wallets linked to Magnate Finance scammers. They reported that approximately $1.34 million worth of DAI tokens were transferred to a new address, of which $1 million ended up in the BNB chain via the interconnected platforms of Ethereum L2, Arbitrum, Optimism, and the Binance chain through Stargate. Approximately 295 ETH and 1.3M DAI remain on the Base Chain.
However, the convenience of decentralization has an ominous shadow side, creating opportunities for scams and hacks. A disturbing trend is on the rise where exit scams and rug pulls have become rampant. They’ve cost the cryptocurrency ecosystem an estimated $656 million just within the first half of 2023.
But, is the issue in the essence of decentralization, or should users learn how to better navigate the blockchain ecosystem, double-checking each investment’s reliability before jumping in? As we traverse the frontier of blockchain technology, establishing the ultimate responsibility might prove a difficult task. Is it upon the individual or the systems, protocols, and networks that facilitate these interactions and transactions?
As it stands, wholly trusting a decentralized platform with millions in assets might not be the smartest move just yet. So, until more robust measures are implemented, a fair bit of crypto-scepticism might go a long way.
Source: Cointelegraph
