Yield Protocol Balance Supply Discrepancy

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Yield Protocol Logo/Homepage

Yield Protocol, an Ethereum-based platform, offered fixed-rate, fixed-term borrowing and lending through fyTokens. However, due to low demand and regulatory pressures, it ceased operations in October 2023. Although it continued to support existing series, all lending activities officially ended on December 29, 2023. In January, users were onec again urged to close their positions as official support ended on February 2nd. Recently, an unknown hacker exploited a discrepancy in Yield Protocol's strategy contract on the Arbitrum chain, stealing approximately $181,000 in assets. CertiK's investigation revealed the hacker's method involved flash borrowing assets and extracting additional pool tokens. Due to the end of official support, there is likely to be little hope of recovering the stolen funds.

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

About Yield Protocol

"Yield Protocol is an Ethereum-based protocol for collateralized fixed-rate, fixed-term borrowing and lending."

"Today, most of the popular decentralized finance protocols are floating-rate. While floating-rate lending and borrowing is a powerful tool, it comes with significant drawbacks. These protocols may experience interest rate volatility that can make it difficult for you to plan for the future, make investment decisions, and properly hedge risk when borrowing and lending. Yield Protocol solves these challenges by introducing fixed-rate, fixed-term borrowing and lending."

"To achieve its goals, Yield uses a class of tokens called fyTokens (fixed yield tokens). fyTokens are Ethereum based ERC-20 tokens that can be redeemed for an underlying asset one-to-one after a predetermined maturity date. For example, if you have one fyDai token, you can redeem it for one Dai after the maturity date."

"Earlier, in October 2023, the fixed-rate lending protocol Yield Protocol announced it would cease operations. Due to insufficient demand for fixed-rate borrowing on Yield Protocol and increasing regulatory requirements in the United States, Europe, and the United Kingdom, the team decided to discontinue the protocol's development. Although Yield Protocol will not launch the fixed-rate series in March 2024, it will continue to provide full support for the December 2023 series. All lending activities on Yield Protocol will end on December 29, 2023. In January this year, Yield Protocol reminded users to close their positions in the protocol, and official support would end on January 31."

"Official support for Yield Protocol has ended. Thank you to everyone who has been a part of this journey with us. We've had a blast and are proud to be a part of the crypto community."

"According to Pai Shield monitoring, an unknown hacker stole approximately $181,000 worth of encrypted assets from the strategy contract of Yield Protocol on the Arbitrum chain."

"A hacker stole approximately $181,000 worth of crypto assets from Yield’s strategic contracts present on the Arbitrum blockchain. The hacker exploited a discrepancy between the pool token balance and total supply with flash-loaned assets and then withdrew extra pool tokens."

"CertiK investigation found: "The attacker exploited the difference between pool token balances and total supply, flash borrowing assets, and extracted additional pool tokens." (Cointelegraph)"

"Official support for the Yield Protocol ended on Feb. 2, and despite a history of resurgence, an attempt to recover the hacked funds seems unlikely."

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 - Yield Protocol Balance Supply Discrepancy

Date	Event	Description
June 27th, 2023 7:49:00 AM MDT	Protocol Restoration Complete	Yield Protocol reports that they have now fully recovered the protocol from the Euler hack and the liquidity provider bug. Liquidity provider are required to upgrade strategy tokens in order to start earning fees again.
October 4th, 2023 7:10:07 AM MDT	CoinTelegraph Article	A CoinTelegraph article announces that Yield Protocol will be winding down operations by December 31st, 2023.
February 2nd, 2024 7:03:00 AM MST	Final Closing Tweet	A final tweet marks the closing of the ability to receive support. The protocol declared that they're fully closing down support.
April 29th, 2024 7:19:59 PM MDT	Malicious Transaction	The transaction which drains the yield protocol smart contract on Arbitrum blockchain.
April 29th, 2024 7:38:00 PM MDT	PeckShield Tweet	PeckShield posts about the malicious transaction, with a mention of @yield.
April 29th, 2024 7:50:00 PM MDT	Tweet With Transaction ID	A tweet with the actual transaction ID is shared by TwapSlapper, saving hours cumulatively.

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 $181,000 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.