Justin Sun, Tron founder recently withdrew $4.2 billion from Aave lending pools, affecting the liquidity of the Defi lending network, further causing a spike in interest rates. According to market speculations, the sudden and expensive liquidation is the result of the ongoing debate on Twitter between the Yearn and Aave community, regarding Aave being vulnerable to a potential exploit.
Yesterday, Yearn founder, Andre Cronje took to Twitter to highlight that the Aave protocol “is vulnerable to the same exploit” that CREAM finance suffered earlier this week. The Defi network, Cream Finance suffered $130 million worth of a flash loan attack, and the community is now at war with Aave for scrutinizing the protocol’s security by speculating a potential exploit.
Aave core after 24 hour defamation marathon on yearn for cream being exploited, while Aave is vulnerable to the same exploit. How is that disclosure of funds at risk going for your users? 2nd full protocol exploit. Tell me again how much better your security is. https://t.co/OahM8BJS9w
— Andre Cronje 👻 (@AndreCronjeTech) October 29, 2021
In lieu of the raging exploit speculation Aave is set to temporarily suspend borrowing on xSushi and Defi Pulse Index (DPI), along with freezing deposits, borrows, and rate swaps for UNI/BAL AMM Markets after a proposal by the community members, appealing the protocol to take the mentioned precautionary measures. With nearly 590,000 votes for the proposal and only 1 against, Aave Improvement Proposal (AIP) 44 is gravitating completely towards getting passed. However, voting doesn’t close until tomorrow, and given the decentralized twists, anything can happen.
Flash Loans in the NFT market
The flash loans concern is not limited to Defi’s lending protocols. Yesterday, the Non-Fungible Token (NFT) market was hit with a flash loan hack aimed at raising the floor price of the token. The white-haired, green-eyed pixelated character known as the CryptoPunk 9998, which was bought for $532 Million from a loan that the attacker borrowed, was sent to the bidder’s wallet but with a hiked floor price, according to the Ethereum blockchain. In a more traditional market, this process would be referred to as, wash trading, which is also under regulators’ oversight for being a crypto tax loophole.
Larva Labs, the CryptoPunks founder, revealed on Twitter that this process is called, “flash loans”. “In a nutshell, someone bought this punk from themself with borrowed money and repaid the loan in the same transaction.”
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