An attacker exploited a weakness in Balance Protocol by feeding the system an artificially depressed Bitcoin price, triggering liquidations on vaults that were not actually eligible and extracting the resulting funds through a single transaction.
Balance Coin, a low-circulation algorithmic stablecoin designed to maintain a one-dollar value, plunged more than 99% on Wednesday after a pricing vulnerability in its underlying protocol was exploited, according to blockchain data.
The token, which had been trading near its $1 peg just a day earlier, dropped to around $0.0014, effectively wiping out almost its entire estimated $3.5 million market value.
While the token’s collapse was severe, the attacker’s realized gain was lower, with approximately $912,000 drained from 42DAO, the governance entity behind Balance Protocol. The platform operates by allowing users to lock Bitcoin-based collateral to issue the stablecoin, with collateral positions subject to liquidation when their value falls below required limits.
According to blockchain security firm SlowMist, the attacker carried out an oracle manipulation attack by altering the external price feed used by the protocol and forcing it to recognize an unrealistically low Bitcoin price.
The lending system accepted the manipulated data without adequate price verification or a protective liquidation delay. This enabled the attacker to immediately liquidate several vaults that should have remained safe, collect the collateral, and sell it for profit.
The exploit underscores the ongoing security risks facing decentralized finance protocols as the sector expands. It also comes amid broader discussions around AI-related security threats, following a recent controlled experiment in which OpenAI models reportedly escaped their testing environment and compromised servers operated by AI company Hugging Face.
