$0 USD

MARCH 2020

GLOBAL

SYNTHETIX

DESCRIPTION OF EVENTS

"Synthetix is the backbone for derivatives trading in DeFi, allowing anyone, anywhere to gain on-chain exposure to a vast range of assets."

 

"[S]ynthetic assets are collateralized by the Synthetix Network Token (SNX) which when locked in the contract enables the issuance of synthetic assets (Synths). This pooled collateral model enables users to perform conversions between Synths directly with the smart contract, avoiding the need for counterparties. This mechanism solves the liquidity and slippage issues experienced by DEX’s. Synthetix currently supports synthetic fiat currencies, cryptocurrencies (long and short) and commodities. SNX holders are incentivised to stake their tokens as they are paid a pro-rata portion of the fees generated through activity on Synthetix.Exchange, based on their contribution to the network. It is the right to participate in the network and capture fees generated from Synth exchanges, from which the value of the SNX token is derived. Trading on Synthetix.Exchange does not require the trader to hold SNX."

 

"After the 3 month trial is complete we wanted all loans to be closed to prepare for the full implementation of Ether Collateral. The loanLiquidationOpen flag can be turned on by the protocolDAO which would allow anyone with sETH to close any remaining unclosed loans and receive the borrowers ETH. This is expected to be sufficient incentive for borrowers to close all loans. If there were abandoned loans because a borrower had potentially lost all of their borrowed funds then there was still a mechanism to allow the sETH to be removed from the system and close the trial."

 

"However since line 345 is set to account which is the loan creators address it would both require the liquidator to have the total sETH borrowed in their wallet address [and] require the borrower to still have the sETH in their wallet address."

 

"Only if both these conditions are met after the 3 month trial has ended and the ProtocolDAO has enabled loan liquidations then it would burn all of the borrowers sETH and send the ETH to the liquidator instead of burning the liquidators sETH."

 

"This has rendered the liquidation mechanism defective and it can not be activated."

 

"We are very thankful to Sam (@samczsun) for reviewing the Synthetix contracts and finding and a bug in our Ether Collateral contract yesterday. The code is deployed to mainnet but is not yet active, so no funds are at risk."

 

"While the Ether Collateral contract upgrades were audited by Sigma Prime there was a misunderstanding as to the intent of the liquidation process specced in the SIP. In addition this was put through code review internally unfortunately this issue was missed and was not covered by our internal tests, this lack of test coverage is something we will address moving forward to ensure we increase test coverage from 95%+ to 100%."

 

"We will be working closely with our audit partners Sigma Prime and Iosiro in the future to ensure we minimise the possibility for future incidents such as this through clearer communication."

A bug existed in the Synthetix smart contract which would have prevented the liquidation method from being activated, a serious fatal issue.

 

The problem was detected and resolved before the updated contract was launched.

HOW COULD THIS HAVE BEEN PREVENTED?

Sources And Further Reading

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