During the attack on Nirvana’s DeFi protocol, built on Solana, its algorithmic stablecoin NIRV collapsed along with the project’s token called ANA. Those assets fell by 94% and 81%, respectively. Alas, but stable does not always mean sturdy.
The hacker attacked the protocol using the flash loan attack a smart contract exploit where an attacker takes out a flash loan from a DeFi protocol, uses the capital that they’ve borrowed, and pays it back in the same transaction; thanks to which he managed to steal about $3.5 million, previously borrowing approximately $10 million.
A crypto trader and former web developer Andy D first reported the hack. He noticed that the attacker sent funds to the Ethereum mainnet via wormhole and converted it to DAI stablecoin. Here’s the ETH address.
NIRV, the DeFi-protocol’s algorithmic stablecoin, lost its peg to the U.S. dollar during the attack and dropped 94% to $0.06. Nirvana ANA’s native token fell from $8.9 to $0.81, a 91% drop.
Now ANA has recovered slightly and is worth $1.13 at the time of writing.
The developers of Nirvana also confirmed the news of the hacked project.
“The Nirvana protocol suffered an exploit today. Our team is investigating the attack and will make an announcement to the community as soon as possible,” says the report.
Why are stablecoins collapsing?
A stablecoin is a cryptocurrency whose value is fixed to another asset, often currencies such as the U.S. dollar or the euro. However, other assets are possible (e.g., XSGD Singapore Dollar). This crypto coin tracks the underlying asset, making its value stable over time, at least relative to the currency it’s pegged to.
Advantages of stablecoin:
- Stable value. Their price is not as volatile as other digital assets, which is safe. Such a coin has all the advantages of cryptocurrencies, but its value is stable.
- The ability to convert Bitcoins (or another digital asset) to stablecoins in case the market collapses.
- Fast and secure international payments.
However, such coins have disadvantages, and the main one is that, as the practice has shown (mainly in the history of UST and LUNA), they are not so stable. And it’s mostly due to hacks, but not always. Another reason is related to the fact that stablecoins fall when the rest of the crypto starts to grow because people start to convert their stablecoins into fiat. Still, it also depends on the flow of stables coming to the exchange, that is, roughly speaking, how many of them are “printed.”
There is a possibility that because of such attacks, the credibility of stablecoins is slowly being lost. But in the current circumstances, the main thing the experts advise — do not to store your digital assets in one stablecoin. There are USDC and BUSD, DAI, and many options to keep value besides the collapsed USDT and ANA. It seems like an excellent option to save your savings. What do you think?