Mango Markets: DeFi Has a Bigger Problem Than Hacking

Here we’ll take a look at one of the latest exploits in DeFi — one that didn’t require hacking any code. DeFi application Mango recently faced a exploit and depositors lost some $100 million initially.

If decentralized finance could be said to be driven by one overriding motto, it’s providing equal access to financial services, without a giant bank greedily skimming off the top. So it goes in theory, at least.

Through a series of transactions last week, an attacker was able to exploit a relatively illiquid exchange and make some bets that drained the protocol of pretty much all its resources. This being DeFi, all they had to do was convince the code that they had all the right permissions to make such trades — and the bots obliged. After some negotiating with Mango’s overseers, the exploiter got to keep about $50 million.

But while some of the traders described the exploit as perhaps immoral, the consensus was that it was a very impressive feat. After all, if the code allows it and there wasn’t any password-stealing or backdoor-accessing going on, how could it be wrong?

Leaving aside whether the maneuver was illegal or not (the exploiter called it a “highly profitable trading strategy”), it does leave DeFi facing some fundamental issues. It marks the ascent of “financial hacking” in DeFi, and with Bitcoin seemingly glued to around $19,000, it isn’t hard to imagine crypto’s sharks circling other marketplaces. The Mango exploiter is already soliciting interest for their services elsewhere.

“Traders have an inherently antisocial outlook on the world where they’re trying to find arbitrage, so anything up to the point of directly breaking the law is considered fair game,” said Sid Powell, the chief executive of DeFi lending marketplace Maple Finance.

If his assessment is correct, that bodes ill for a sector that operates outside the remit of regulators and has already lost billions of dollars to hacks and heists this year. If there are no regulatory guardrails or credible threats of legal consequences, what’s to deter unscrupulous traders from feasting on soft targets like Mango? “As the bear market drags on I expect to see more and better-capitalized exploit attempts in this vein,” says Kaiko research analyst Riad Carey.

Despite DeFi’s best intentions, those who choose to put their hard-earned crypto on such platforms might want to consider another of Powell’s admonitions about the barbarians assembling at the gates: “If they win, you lose.”

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