Linear Finance, a decentralized financial (DeFi) protocol, recently fell victim to an attack that drained all liquidity from its native stablecoin, Linear USD (LUSD), causing its value to plummet to zero.
On September 21, 2023, an attacker exploited a vulnerability within Linear Finance’s protocol. The intruder managed to mint an infinite supply of ℓAAVE tokens and swiftly exchange them for LUSD on the Linear Exchange.
🗣️Urgent Update Re $LUSD 📢
Liquidations are paused and users accounts are not at risk.
Further updates will follow.
— Linear Finance (@LinearFinance) September 21, 2023
As noted by the Linear team in a blog post, this maliciously acquired LUSD was then dumped onto decentralized exchanges, PancakeSwap and Ascendex, causing the stablecoin’s value to collapse.
How Linear Finance Reacted to the Exploit
However, to ensure the safety of user accounts, Linear Finance took immediate measures to halt token minting, burning, and exchanging by pausing relevant protocol contracts. Additionally, the Linear Bridge contract for LUSD was temporarily disabled.
They also claim to have engaged a prominent industry team with the mission of tracking down the attacker(s) and holding them accountable. Crucially, information about wallets involved in the exploit was shared with major exchanges and authorities.
The project’s top priority now is to restore the protocol and undo the damage to its user base, pledging regular updates to concerned users, despite the turmoil.
LUSD Stablecoin and LINA Token
Linear Finance’s ecosystem revolves around two core tokens: LUSD and LINA. LUSD serves as a USD-pegged stablecoin used to collateralize synthetic asset positions on the Linear Finance protocol.
Following this incident, it’s worth noting a significant surge in trading volume for LUSD, which increased by 62,772.30% in the last 24 hours, as per CoinGecko data.
Similarly, LUSD stablecoin’s price plummeted to $0.000025 a few hours after the attack, marking an astounding 100% decrease from the previous day.
On the other hand, LINA is the governance and staking token within the Linear Finance ecosystem. Despite the DeFi exploit, LINA appears to have maintained its value, trading flat at $0.011 at the time of reporting. Notably, LINA has even experienced a 3.5% gain over the past week and about a 1% increase in the past 24 hours. Meanwhile, it remains down 96% from its peak in March 2021.