Is Acala hack the end to algorithmic stablecoins?

Is Acala hack the end to algorithmic stablecoins?
Is Acala hack the end to algorithmic stablecoins?

The Acala’s algorithm stablecoin exploit is now making crypto experts question if algorithm stablecoins will soon become obsolete.

Hackers exploited the Acala stablecoin, aUSD. The hacker took advantage of a bug in the code to print approximately 1.27 billion aUST. The aftermath of the exploit has been damaging for aUSD as the token plunged from $1.03 to $0.009 per token. 

According to the information available on Acala’s website, aUSD is a decentralized stablecoin backed by cross-chain assets. The coin continued to maintain its peg on the USD until the latest exploit, the bug caused by a misconfiguration in the iBTC/aUSD liquidity pool that went live on Sunday. The hacker quickly exploited the bug to mint aUSD erroneously—other users who the loophole stole thousands of dollars worth of DOT from the liquidity pool. 

Acala hack, Is Acala hack the end to algorithmic stablecoins?

The new development in the Acala exploit is not good for the crypto industry because the industry is under scrutiny for multiple cross-chain and DeFi exploits that happened recently. The LUNA UST stablecoin demise happened in July when the stablecoin lost its peg, which led to the crash of the LUNA coin, which plunged from $120 to less than 0.1 cents. The ripple effect of the crash caused the price of top coins like Bitcoin and Ethereum to crash. Bitcoin crashed from $68,000 to around $19,000. Bitcoin price is currently recovering slowly. 

Acala hack, Is Acala hack the end to algorithmic stablecoins?

LUNA/USDT chart

The Acala team has moved to reduce the hack’s effect on the community. The team has disabled the erroneously minted aUSD to be transferred from the chain. The company also urges the hacker to move the tokens to a particular address. The team has paused token swapping, and the team has continued to monitor on-chain activity trace to monitor the movement of stolen funds. 

Acala hack, Is Acala hack the end to algorithmic stablecoins?

The crypto industry has come under scrutiny lately, with industry experts calling for more regulations; key US Senators introduced a bill highlighting how crypto companies registered in the country will operate; the bill also includes a total ban on algorithm stablecoin. The rule might be great but has some downsides, too. When the bill is implemented, we might expect more Ripple vs. US SEC-like lawsuits.

Chris terry, BPSAA board member and VP of enterprise solutions at SmartFi, believes that US dollar-pegged stablecoins are more reliable than algorithm stablecoins. He said, 

“Once again, it shows that the algorithmic stablecoins, in this. Case Acala, a stablecoin collateralized against other currencies and not pegged to the US dollar, is vulnerable to an attack with smart contracts. Once a stablecoin is depegged like this, the chances of it returning are very slim. The leaders in the space are tether and usdc; both are collateralized one-to-one with dollar assets and remain the safest place if you’re looking for a stablecoin.”

Some Acala investors still believe that the Acala team has everything under control and that the algorithmic stablecoin will return to normal. @tastybaozi Tweeted, “No need to FUD. Acala has everything under control.” 

Acala hack, Is Acala hack the end to algorithmic stablecoins?

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