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Balancer Advises its Liquidity Providers to Withdraw Funds Fearing a Possible Exploit

Because of a potential security breach, the DeFi protocol Balancer requested that liquidity providers remove their liquidity from certain pools as soon as possible.

Photo by Martin Sanchez / Unsplash

Balancer Issues a Cautionary Note About the Possibility of Exploitation and Requests That LPs Withdraw Their Assets.

In a thread (1) on Twitter dated January 6, the DeFi protocol disclosed that the affected liquidity pools comprised the DOLA/bb-a-USD pair on Ethereum, as well as the It's MAI Life and Smells Like Spartan Spirit pairs on Optimism, the bb-am-USD/miMATIC pair on Polygon, and the Tenacious Dollar pair on Fantom. These pools hold digital assets valued at $6.3 million when added together.

"Protocol fees of some Balancer pools have been set to 0 to avoid an issue that is now mitigated and will be publicly disclosed in the near future. This has been done by the emergency multisig, a 4/7 comprised of BLabs engineers and Balancer Maxis.
These pools continue to function normally, so no action is needed by LPs of those pools. They will continue to accrue swap fees, but the protocol will not take its cut from them."

Balancer did not disclose the problem but stated that they would make it public later. As a potential solution to the issue, the DeFi platform said that the emergency multisig had reduced the cost of its protocol transactions to zero.

Due to Balancer's lack of clarity over the issue, cryptocurrency community members have speculated about what might be wrong. Any vulnerability in Balancer, the 4th biggest decentralized exchange, might have a huge effect on the industry.

In the meantime, this isn't the first time (2) Balancer has been put in danger by a vulnerability that may be exploited. In 2020, a hacker stole $500,000 from Balancer by using two liquidity pools.

Impact on Balancer's BAL Token

The possibility of an exploit being used on the protocol does not appear to affect Balancer's native token, which BAL denotes. Since this article was published, the price of BAL has increased by 0.62%, reaching $5.346. During the same era, however, its trade volume fell by almost 7%.

Balancer Chart. Chart Source: (1.1)

According to data provided by Defillama, the trading volume on the Balancer DEX was $92.21 million in the preceding twenty-four hours and nearly $350 million for the entire month of January. The total value of the TVL for the protocol is $1.5 billion.

The exploitation of DeFi Protocols In the year 2022, malicious players launched multiple attacks against DeFi protocols. Reports surfaced in July alleging that cybercriminals had stolen over $2 billion from the crypto currency industry.

In the meantime, blockchain security company Certik reported (3) that December 2022 recorded the lowest monthly figure for stolen cryptocurrencies. According to the company, there was a total loss of only $62 million over the month.

According to reports, the company forecasted that there would be an increase in the number of hacks and attacks inside the business in the coming year.

"Combining all the incidents in December we’ve confirmed ~$62.2M lost to exploits, hacks and scams. The lowest monthly figure this year. Exit scams were ~$15.5M. Flashloans were ~$7.6M"