Alchemix alETH "Rug Put"

Notice: This page is a freshly imported case study from the original repository. The original content was in a different format, and may not have relevant information for all sections. Please help restructure the content by moving information from the 'About' section to other sections, and add any missing information or sources you can find. If you are new here, please read General Tutorial on Wikis or Anatomy of a Case Study for help getting started.

Notice: This page contains sources which are not attributed to any text. The unattributed sources follow the initial description. Please assist by visiting each source, reviewing the content, and placing that reference next to any text it can be used to support. Feel free to add any information that you come across which isn't present already. Sources which don't contain any relevant information can be removed. Broken links can be replaced with versions from the Internet Archive. See General Tutorial on Wikis, Anatomy of a Case Study, and/or Citing Your Sources Guide for additional information. Thanks for your help!

Alchemix

Alchemix is a crypto lending platform. Unlike other platforms, they simultaneously invest your collateral in yield farming, which is then used to repay your loan automatically for you.

There was a bug where users loans were repaid too quickly, allowing them to withdraw their collateral sooner than they should have been. After resolving the bug, the team used various tactics to convince the community to return funds.

This is a global/international case not involving a specific country.

About Alchemix

"Alchemix lets you reimagine the potential of DeFi by providing highly flexible instant loans that repay themselves over time. The synthetic protocol token (alUSD) is backed by future yield."

"Alchemix is an innovative, hybrid DeFi application that allows for the creation of yield-backed synthetic assets. With its unique ability to provide collateral that can also generate yield, Alchemix can offer a self-paying loan that has effectively no risk of liquidation. This product, “Vaults”, is the centerpiece of the Alchemix ecosystem and uses Yearn.finance as a building block for yield on underlying assets like DAI, with support for ETH and others coming soon." "While many stablecoin-backed DeFi lending platforms exist, most leave it up to the user to manage keeping the loan collateralized and paying it off. Alchemix seeks to automate this process for users interested in receiving stablecoin-backed loans."

"This process of repayment — which a user must typically complete manually elsewhere — is automated on the Alchemix crypto platform. Since alUSD continuously flows in as yield that is generated from Yearn.Finance, the supply of alUSD is automatically converted back to DAI at a 1:1 ratio in order to pay off the loan as yield is accrued."

"The DeFi lending agreement Alchemix alETH pool is suspected to have a loophole, and users can raise collateralized ETH when they have outstanding alETH debts. Alchemix released an alETH pool accident report stating that due to an error in the deployment of the alETH pool script, users have borrowed alETH at a 4:1 mortgage ratio but have no debt to be repaid, and the debt ceiling of nearly 2000 ETH has been released and new ones can be minted again. alETH, combined with Alchemix's use of the wrong index in the vault array, forced the transmuter to support the agreement mechanism to completely send the funds to repay the user's debt. The team has stopped the mortgage lending of the pool. As of the time of the report, alETH currently has a gap of -2,688.634, which is about 6.53 million U.S. dollars. Alchemix stated that there was no loss of user funds, and Yearn did not suffer any loss."

"On Wednesday June 16th @ approximately 12pm UTC, the call to Alchemist.harvest() that was supposed to pay off a small amount of borrower debt instead paid off all of the debt in the system. Additionally, between the time the harvest occurred and the Alchemix team paused minting, alETH loans were taken on credit that was produced as a result of the harvest, As such, there is approximately a 2200 shortfall of ETH/alETH in the system, all of which was distributed to system users."

"During today’s harvest — when token rewards are gathered and handed out proportionally to those holding tokens in the pool — a bug in the system led to withdrawals that shouldn’t have been allowed." "For an unknown amount of time, Alchemix borrowers could deposit ETH (+2.92%), get the project’s alETH token in return and then withdraw the ETH used to secure their loans without having to pay them back."

"Thankfully the damage was contained because of our conservative guarded launch and the whitelisting of certain function calls. In total, there is a 2688 ETH shortfall in the backing of alETH, but no user lost any of their own funds." "This is not at risk for happening again. We will redeploy the alETH vault and transmuter to ensure the vaults are indexed correctly. This will also clear out the maligned state."

"How are we going to put this right? We are asking our community to support the protocol, the DAO, and the devs, please consider distributing any excess ETH gained during this time to the new Transmuter, to allow it to back the outstanding loans that it created."

"We’re asking dedicated users who were involved in the alETH loan repayment incident if they’d like to return their accidental funds in exchange for ALCX tokens and a limited edition NFT with special DAO functionality."

"Our AMAZING community donated a combined total of 1206.63 ETH from our 2265.83 ETH deficit. This program will be closing on Monday, July 5th at 14:00 UTC. Shortly after this, we will do the ALCX airdrop for all who donated to our cause." "There will be a special NFT for those that returned their "free" alETH or ETH. A separate NFT for donations from accounts is under consideration. But please don't donate dust in hopes of getting a free NFT."

AS of July 12th, "alETH is back up, with an initial cap of 2000 alETH. Everyone, both Legend and Patron supporters are able to claim their 1:1 ETH-ALCX rewards. Legends can now claim their super exclusive NFT." "Legends: people who returned the reverse-rugged ETH/alETH. Patrons: people who generously donated ETH to the future of France. The Patron NFT will be made available soon."

This is a global/international case not involving a specific country.

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Alchemix alETH "Rug Put"

Date	Event	Description
June 16th, 2021	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

Total Amount Lost

The total amount lost has been estimated at $6,530,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

What parts of this case are still remaining to be concluded?

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.