Warp Finance Comes Back with a Vengeance Following Hack

While hacks and other cyberattacks can often be devastating in today’s digital era, decentralized finance (DeFi) startup Warp Finance bounced back from a recent flash loan attack in record time. 

Warp Finance’s Warp Protocol allows liquidity provisioning (LP) tokens to collateralize stablecoin loans, a totally novel function that provides its users with significant value. However, shortly after the protocol launched, it was the victim of a flash loan attack. These attacks are a growing issue in the DeFi space, involving hackers gaming the system (or, manipulating the protocol) to allow them to extract large sums of money. 

Despite this setback, Warp Finance was able to recover quickly and successfully; the company reobtained and redistributed most of the missing funds, resecured the platform, and relaunched to its original functionality – plus some additional features.

How 75% of Lost Funds Were Recovered 

Warp Finance’s primary objective has always been to benefit their users. Thus, they acted swiftly to recover stolen funds. The startup regained possession of 75% of the lost stablecoins, with an equivalent value of $5.82 million, which it redistributed back to its rightful owners. Furthermore, to compensate users for remaining losses, Warp designed and implemented its new Portal IOU token, to be airdropped to users impacted by the hack. 1 Portal IOU token will be redeemable for 0.001449697206 Warp Token, meaning that there will be a total of 7,760,241 Portal IOU tokens. 

These tokens will be backed by 7.5% of the total Warp Token supply, with an equivalent value of 11250 Warp Tokens. Portal IOU tokens also have a built-in bonus generation feature – if users wait until the end of the 6-month vesting period to redeem them, they will receive additional Warp Tokens. Alternately, Portal IOU tokens will be freely tradable on Uniswap, giving users a value-generating option that allows the tokens to keep their redeemable worth.

A Renewed Launch With Community Confidence 

In addition to compensating impacted users, Warp Finance also prioritized thoroughly resecuring its platform. The Warp Finance team made security edits to its code, which it then had audited by security review firm n-Var. The main objectives of this security audit were to find solutions to the flash loan attack, as well as to ensure that Warp’s updated price oracles were secure – particularly regarding how they value LP tokens. 

As a result of this audit, Warp Finance and n-Var determined it was best to switch from Uniswap price oracles to Chainlink price oracles, in addition to making edits to Warp’s LP token price-determining calculations. Thanks to these changes, Warp’s valuation of LP tokens is correct while also allowing maximal protections against future attacks and hacks.

To further demonstrate its commitment to its community, Warp is allowing users to carry out community reviews of its protocol. These community members will provide comprehensive feedback, used towards guiding the Warp Protocol’s structure and functions.

In the face of this major obstacle, Warp Finance was able to recover in short order, implementing strong security updates and compensating its users in a variety of methods. As a result, Warp was able to relaunch its protocol, allowing users to again gain value through LP token-collateralized stablecoin loans.

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After exploit, Warp Finance compensation plan takes promising strides

In a blog post on Saturday night, Warp Finance — the latest decentralized finance (DeFi) protocol to suffer a smart contract exploit — announced promising strides towards recompensating users following a nearly $8 million flash loan attack. 

As Cointelegraph reported on Friday, the DeFi protocol, which offers stablecoin loans on liquidity pool token collateral, lost $7.7 million in USDC and DAI when an attacker used multiple flash loans to create liquidity pool tokens, manipulate Warp’s price oracles, and drain Warp’s stablecoin coffers.

Following the attack, a group of whitehack hackers convened to assist the protocol in assessing the damage and creating a fix for the exploit — and, in this case, recovering a portion of the lost funds.

In a post titled, “Exploit Summary & Recovery of Funds,” the Warp team notes that they could not liquidate the attacker’s loan due to the manipulated oracle, but with the help of the whitehat team managed to reclaim the liquidity pool token loan collateral.

“The loan collateral has since been secured by the warp finance team and will allow us to return approximately 75% of users’ deposited funds, thanks to support from the Ethereum and white hat community,” said the team.

The post said that the team will disburse funds to affected users on Dec 21st, 2020, and invited users to independently confirm that the snapshot they took of addresses is correct.

The team also doubled down on a complete compensation plan, promising the distribution of IOU tokens that will have some future utility to cover the remaining 25% loss:

“While we are relieved that lost funds have been partially recovered, we see this only as a first step to making Warp Finance users whole. For this reason we will issue Portal IOU tokens to every affected user. The end goal of the IOU token is to fully refund users, and potentially even giving them a profit on what they initially deposited.”

The Warp team’s devotion to completely covering user losses is part of what may be becoming a promising trend across exploited DeFi protocols. 

In a previous interview with Cointelegraph, Alan, a semi-anonymous core developer for Cover — a project offering ‘cover,’ and insurance-like product for DeFi users — said that developers taking responsibility for losses will ultimately push the space forward:

“I believe protocols (and their auditors) need to start taking responsibility for the code they push out,” he said. “Whether it is through they themselves providing coverage, or reimbursing funds, this type of behavior sets a strong precedent and allows users to feel more confident in the platforms they use, which helps boost TVL, so a win-win.”


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