Three DeFi Projects Shut Down, Is DeFi Shaken?

Following Saddle Finance and Spirit Swap, another DeFi project is shutting down. Hundred Finance, a multi-chain leading protocol on Optimism, declared a shutdown following a special vote.

The poll, starting on July 26, raised the question of whether or not the project should sunset its lending services and compensate mveHND impacted by the latest hack. It ended on August 9 with 99.07% voting to shut down Hundred Finance.

As part of the process, victims of the hack in April will need to join the project’s Discord and stay updated in the general channel.

DeFi Under Pressure

The project has acknowledged that the current assets available are insufficient to compensate those impacted by the losses incurred fully. To address this, a proposal has been put forth, subject to approval by the DAO, that seeks to allocate existing funds to the affected individuals directly.

The allocation plan will include an immediate distribution of 1.1M USDC and 391,811 ARB, a distribution of 191,449 OP based on consensus, an auction of Velodrome’s VeNFT, and a delivery of assets recovered from the hack.

The protocol was under attack in April, resulting in a total loss of $7.4 million. While the specific details of the attack’s execution were not fully disclosed, blockchain security firm CertiK indicated that it was a flash loan attack.

A flash loan attack is a common exploit to drain funds from decentralized finance protocols. Fast and effective, this illicit method is always attractive to hackers. The most significant flash loan attack of the year occurred on lending protocol Euler Finance in March, resulting in a loss of nearly $197 million.

Typically, the attacker borrows a large amount of money in a flash loan with no upfront collateral or credit checks, uses that money to manipulate the asset’s price in the DeFi protocol, and walks away with profits after repaying the loan.

Is DeFi Shaken?

In only three days, three DeFi protocols announced the closure of their operations. Saddle Finance, the promising Ethereum-based AMM protocol, announced on Tuesday that it would cease operation and pay investors.

Saddle Finance, a DeFi protocol that allows users to earn yield on stablecoins, is proposing to liquidate its funds and distribute them to holders of its SDL and veSDL tokens. The move comes after the Curve Finance hack last week, which has caused Saddle Finance to face many difficulties due to a decline in user confidence.

Saddle Finance founder Sunil Srivatsa said the team was aware of the risks posed by existing vulnerabilities, especially after the project was hacked for $11 million in April 2022. The team believes that liquidating the funds is the best way.

Holders will receive ARB tokens in exchange for their SDL and veSDL tokens. veSDL holders will receive four times more ARB tokens than SDL holders. It is not clear how much money Saddle Finance has in its fund.

After Saddle Finance, SpiritSwap, one of the first native DEX AMM exchanges on Fantom, announced its dissolution.

The project was hacked and shut down by Multichain, which caused SpiritSwap to suffer heavy damage and lose all of its funds. SpiritSwap is currently looking for a new team to take over the project, but if no team is found, the project will cease operations on September 1.

The steady growth of the DeFi landscape comes hand in hand with the increase in hacks and exploits. DeFi protocols are still relatively new, untested, and lucrative targets.

Apart from problems inside the sector, the outsiders remain challenging. Governments around the world are increasingly scrutinizing and trying to crack down on DeFi. Additionally, there is competition from traditional finance with similar offerings and services.

Modern problems need modern solutions. DeFi has the potential to revolutionize the financial industry, but security measures need improvements.