FEI PROTOCOL

DESCRIPTION OF EVENTS

"FEI is a new kind of stablecoin. It is more capital efficient, has a fair distribution, and is fully decentralized. The protocol uses the value it controls to maintain liquid secondary markets."

"The elegance of DeFi is the ability to offer the best possible financial solution in every category. But users today are forced to choose between frustrating options when looking for a decentralized stablecoin. On one side, there are bloated, debt-fueled overcollateralized stablecoins that cannot scale to meet demand. On the other are algorithmic stablecoins that fuel volatility and continuously centralize rewards in the hands of the earliest holders. To truly build DeFi’s vision of global interoperable financial access, there needs to be a decentralized, fair, liquid, and scalable stablecoin that exhibits a high fidelity peg."

"Stablecoins are a staple of DeFi. Users want to access dapps like Compound and Aave without worrying about volatility. However, each existing stablecoin model has a critical fault. Fiat-collateralized stablecoins like USDC and USDT are centrally controlled. This represents a regulatory risk and a point of failure for apps wishing to be truly decentralized. Crypto-collateralized stablecoins like DAI have scalability issues due to capital inefficiency. In other words, generating crypto-collateralized stablecoins requires an excess of collateral. They also require demand for debt or leverage to grow. Seigniorage models like ESD and Basis Cash centralize supply expansion rewards. This creates an unfair distribution in the growth of the stablecoin. In addition, liquidity providers are incentivized to withdraw at the first sign of danger."

"Fei Protocol was born in an attempt to solve all these issues. The inspiration for the vision of Fei Protocol comes from an ancient stone currency — Rai, or Fei, of the Micronesian island of Yap. We hope that the FEI stablecoin exhibits the same stability, simplicity, and ubiquity as its stone counterpart."

"The FEI stablecoin has an uncapped supply that tracks demand. FEI enters circulation via sale along a bonding curve. This curve approaches and fixes at the $1 peg. When new demand for FEI arises, users can acquire it by buying on the bonding curve." "Fei Protocol developed a Protocol Controlled Value (PCV) model, a subset of the concept of TVL, in which a platform outright owns the assets locked into the smart contracts. This is a stronger use case than the IOU common to most TVL applications, as the PCV is permanent. PCV gives the protocol more flexibility to engage in activities that are not profit-oriented. These activities can align with more fundamental goals, such as maintaining stability in the peg."

"We are excited to announce that FEI Protocol will be using ChainSwap technology to bridge their native token FEI USD and TRIBE between BSC and ETH." "Users can swiftly bridge FEI and TRIBE to BSC and ETH using ChainSwap."

"ChainSwap is a bridge protocol that links the Ethereum and Binance Smart Chain (BSC) blockchains." "It supports Binance Smart Chain, Ethereum, Polygon, and Huobi Eco Chain." "The ChainSwap hacker identified and exploited a vulnerability in the ChainSwap smart contract. This vulnerability enabled them to steal and mint new tokens for various protocols that were using the bridge to trade across Ethereum and BSC."

Investigation by ChainSwap revealed "a bug in the token cross-chain quota code. The on-chain swap bridge quota is automatically increased by the signature node, which is intended to be more decentralized without manual control. However, due to a logical flaw in code, this led to an exploit by allowing invalid addresses which weren’t whitelisted to automatically increase the amount."

"The attacker managed to take control of the projects’ BSC contracts by exploiting ChainSwap. The attacker minted tokens directly to their address, then sold them on BSC’s most popular decentralized exchange, PancakeSwap." "[T]he attacker used the PancakeSwap exchange to convert the stolen tokens to WBNB, DAI, and other tokens."

"Chainswap said it had already repurchased a small amount of the affected tokens from the market and returned the contract wallet. The rest will be paid out in full by the Chainswap vault." "ChainSwap team has now prepared and executed a compensation plan in consensus with the affected projects." "In order to bring everybody a more rigorous, efficient bridge, the next development model of ChainSwap will be adjusted to ensure maximum safety."

"For now, Chainswap has temporarily closed its cross-chain bridge." "ChainSwap worked with the police and OKEx to identify the attackers, and managed to negotiate the recovery of Corra and Rai tokens. An initial email with the attackers suggested the attackers return $1 million."

“Sorry for the trouble, you sound genuinely like great people but money is money,” the attackers of the earlier exploit told ChainSwap.

"ChainSwap is excited to announce that we have successfully integrated with Anyswap and Chainswap bridge is now live. We thank our community for its patience during the last few weeks."

Fei Protocol is a new stablecoin. Some of their tokens use ChainSwap to exist on multiple blockchains, which required some funds to be stored in the smart contract hot wallet.

The ChainSwap bridge was hacked, and the attacker was able to obtain tokens from many projects, which were sold. Fei Protocol was listed as being a victim on numerous websites, but it does not appear they posted any announcement and no further information could be found on how the situation was resolved.

HOW COULD THIS HAVE BEEN PREVENTED?

Theoretically, decentralized finance will eventually result in hackers having exploited every vulnerability that exists. However, it's impossible to know when that will occur and if a contract is truly secure, as opposed to there still being an exploit that just hasn't been noticed yet. For any complex smart contract, it's impossible to prove security and plenty of fully audited contracts have been exploited.

Platforms should, generally, be prepared for the full loss of all assets stored in hot wallets (including smart contracts). Assets that do not need to be accessed quickly should be stored securely in a simple offline multi-signature wallet.

Check Our Framework For Safe Secure Exchange Platforms

Chainswap Black Sunday, over 20 DEFI projects were stolen - 律动BlockBeats (Aug 24)
ChainSwap Exploit 11 July 2021 Post-Mortem | by ChainSwap | Medium (Aug 24)
MappableToken | 0x06c24002f43e3AF904EeEc581734EA3A7DbF355E (Aug 24)
ChainSwap Exploit Leads to Multi-Million Loss For DeFi Tokens - Decrypt (Aug 24)
@chain_swap Twitter (Aug 24)
Explained: The ChainSwap Hack (July 2021) - Halborn (Aug 24)
$8 Million Lost in Major ChainSwap Exploit | Crypto Briefing (Aug 24)
ChainSwap re-launch, we are live. ChainSwap is excited to announce that… | by ChainSwap | Medium (Aug 29)
Rekt - ChainSwap - REKT (Aug 29)
blocksec-incidents/2021.md at main · openblocksec/blocksec-incidents · GitHub (Aug 11)
Fei Protocol (Jul 28)
Introducing Fei Protocol (Sep 21)
Fei Protocol Audit - Phase 2 - OpenZeppelin blog (Sep 21)
Fei Tribechief | ConsenSys Diligence (Sep 21)
ChainSwap bridges FEI Protocol to BSC and lists FEI USD and TRIBE - ChainSwap - Medium (Sep 21)
What happened to the DeFi protocols that were attacked? - 律动BlockBeats (Sep 21)
Chainswap Post Mortem Deep Dive Into The Exploit (May 7)
Random Numbers Don’t Lie: A Closer Technical Look into Recent DeFi Hacks (May 7)

More case studies

AnySwap ECDSA
Exploit

DeFiPie Nested
Borrows