Stablecoin Acala Collapses After Exploit

The Polkadot-based Acala blockchain was hit by an exploit on the evening of August 14.

The Polkadot-based Acala blockchain was hit by an exploit on the evening of August 14. Attackers mined 1.3 billion of the Acala stablecoin token aUSD, causing it to collapse entirely.

On the evening of August 14, the Polkadot project Acala was hit by an attack on its stablecoin aUSD. It subsequently lost its peg to the US dollar and fell 99 percent to fractions of a cent. The Acala team managed to suspend certain operations on the blockchain to prevent the attackers from cashing out.

The exploit was made possible by misconfigurations in a liquidity pool, Acala explained in a tweet. Hackers were able to mine $1.3 billion worth of aUSD. The attackers had already swapped a small portion of it for the ACA token. The team identified a wallet of the attackers that currently holds the cited 1.28 billion aUSD. Thanks to a community vote, trading on the protocol has been temporarily halted.

The incident casts another shadow over the stablecoin sector. The risk tied to algorithmic stablecoins remains a major hurdle to their successful rollout.

Stablecoins Under Fire

After the collapse of the Terra UST stablecoin, many questioned the legitimacy of other decentralized, algorithmic stablecoins. Dollar tokens also face criticism because collateralization is often not transparent enough. They remain vulnerable to protocol errors. This is also evident in the recent case involving the Polkadot project Acala and its stablecoin aUSD.

According to Acala's website, aUSD is intended to be a practical stablecoin for Polkadot and Kusama. The token is backed by cross-chain assets, including the Acala token and DOT. Until the hack, aUSD managed to keep its peg to the US dollar stable.

Acala successfully launched as the first parachain on Polkadot in December 2021. Earlier, Acala won its spot in the Polkadot ecosystem with a large majority through an auction.

Acala: Polkadot Declares the Threat Contained

Like Cosmos, Polkadot aims to be the control center for the many blockchains connected to it, the so-called parachains. Acala is seen by many as the driver of the entire ecosystem and is trying to position itself as the leading DeFi project on Polkadot.

Polkadot praised the Acala team on Twitter for their quick response after the exploit. With community involvement, the team acted quickly and decisively to block the falsely mined tokens on the protocol.