YFI Price Collapses From An Unfortunate Hack
Recently, Andre Cronje’s new economy project called Eminence was hacked when a hacker stole $15 million worth of assets. Yearn.finance was held liable for Eminence’s contracts under an agreement and made an announcement to compensate for all the lost amounts. This lead to the price fall of YFI, the governance token of Yearn.finance. In today’s post, we’ll dive into the details of this Eminence hack.
The New Rising Star of DeFi: Andre Cronje
Andre Cronje, the founder of Yearn.finance, has earned himself a high reputation amid the DeFi craze by building a comprehensive platform that utilizes various DeFi services. Yearn.finance provides users with smart contracts that allows them to optimize their lending and earn higher yields by leveraging other DeFi services. This investment strategy has attracted a lot of yield farmers, making Yearn.finance quite successful. Yearn.finance also issued its own native governance token YFI, just like other DeFi services. Andre Cronje had warned that YFI has no real economic value; however, the price of YFI rose significantly when it was listed on Uniswap, surging to $29,312 on September 28, 2020, a value 2.7 times higher than Bitcoin at the time.
Eminence Finance Gets Hacked
Andre Cronje was developing a new economic development project called Eminence, a new gaming multiverse based on the Ethereum blockchain. Eminence was a separate project from Yearn.finance, but it received much attention from DeFi users being known as Andre Cronje’s new project, thanks to the success of Yearn.finance.
The project got hacked when Andre Cronje published staging contracts on Ethereum. He stated that he will deploy the contracts and continue developing on it until its full release, saying that it will take at least 3 weeks until its full launch. He also tweeted that his codes will contain bugs, and insisted on not using it if users didn’t understand this.
Many YFI holders lured into Eminence before the launch of the website or the release of the service, as they wanted to invest early in Eminence and earn the token to sell it at a higher price. Users deposited around $15 million into the staging contracts soon after the announcement.
On September 29, 2020 around 3 AM (UTC), all $15 million deposited into the contracts were exploited due to the hack. The hacker exploited the deployed contracts to mint a lot of EMN — the token for Eminence — and burned them for other cryptocurrencies through Aave and Uniswap, reaping the profit from the currency. The hacker got $15 million from it, out of which $8 million was returned to Andre’s yearn deployer account, for some unknown reason.
Andre Cronje admitted that the project got hacked and said he would return the remaining $7 million to the users. However, he said he has always deployed testing contracts for other projects and claimed that these type of early deployment were not an issue to the project. Users criticized Andre and even threatened him for such claims and he eventually announced that Yearn.finance treasury will help in refunding the funds back to the Eminence investors.
As mentioned before, Yearn.finance and Eminence are separate projects, but according to the China-based publication 8btc, the registration, administrator, and technology contracts are all under the liability of Yearn.finance, holding Yearn.finance jointly liable.
Investors Lose Faith In Andre Cronje
After the unfortunate hack of September 29th, YFI holders who lost faith in Andre Cronje began selling YFI tokens, dropping the price by 6% in 24 hours. The price of YFI was $29,312 on September 28th, a day before the hack, but it fell to $22,764 24 hours after the hack. The price of YFI fell even more today on October 14th, to $15,000.
After the hacking incident, Andre Cronje decided to pause all his work on Yearn.finance and continue building Eminence, according to Coindesk. However, this was proven false as Andre Cronje tweeted that he will only take a break on Twitter and social media on October 10th, saying nothing else has changed.
An EMN investor group called the EMN Investigation also announced that it will sue Andre Cronje and another Yearn.finance developer ‘banteg’ and head of communications ‘Blue Kirby’. The group wrote, “If EMN was a test, it had zero value as a token. Yet Andre watched as $15 million poured in without a word. But kept hyping the project by retweeting. Why didn’t he at least warn the Yearn Finance team that they were buying and selling a worthless test token? If developers from any other team started hyping and selling a test token, they would be accused of fraud and the entire team would lose legitimacy. At best, this was a viral launch gone bad, at worst, it was a rugpull.”
What the Eminence hack tells us is that it didn’t take into account the risk of leveraging profit from using other DeFi services and a mere FOMO had caused a huge investment in unaudited, testing stage contracts. The current perspective of the DeFi market is what led to the raise of huge pool of funds for insecure testing contracts. Investors in the DeFi market today believe that they are able to make greater profits the earlier they invest in a project. Andre Cronje was able to build a high reputation in DeFi due to the success of Yearn.finance, building unconditional faith for his future projects among many investors. This led to many users depositing large amount of funds into unaudited contracts to make greater profits, eventually losing all their money due to the hack.
This incident is a reminder for DeFi users today that users should always be mindful of the risks when using a DeFi service that connects with another DeFi service as well as the security of the service.
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