USP Stablecoin Losses Dollar Peg Following $8.5 Million Attack On DeFi Protocol Platypus

Updated: 17 February 2023

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USP, the stablecoin of DeFi protocol Platypus Finance has lost its peg to the dollar after an $8.5 million flash-loan exploit.

What: Platypus Finance has lost its peg to the dollar, falling from $1 to $0.48
Why: The depegging came after the DeFi protocol suffered a flash-loan attack, losing $8.5 million
What next: The incident has prompted Platypus to suspend all its operations until it gets more clarity on the issue and appeals sent to the exploiter for bounty negations in exchange for asset return

Platypus Finance, a decentralized finance (DeFi) protocol, is the latest victim of a flash-loan attack executed on Thursday, February 16, after the exploiter took advantage of the protocol’s USP solvency check mechanism. A flash loan is a form of uncollateralized borrowing popular among traders on DeFi lending protocols as it facilitates quick profit due to arbitrage opportunities. Nevertheless, threat actors often tap flash loans in an effort to weaken DeFi protocols and extract digital assets from them.

Dear Community,
We regret to inform you that our protocol was hacked recently, and the attacker took advantage of a flaw in our USP solvency check mechanism. They used a flashloan to exploit a logic error in the USP solvency check mechanism in the contract holding the collateral.

— Platypus 🔺 (🦆+🦦+🦫) (@Platypusdefi) February 17, 2023

From the Twitter thread, the exploit that has seen the DeFi protocol lose approximately $8.5 million has resulted in its stablecoin, Platypus USD (USP), losing its price peg to the dollar, detaching from its $1 anchor to $0.48 (48 cents). The token Platypus is now down 52%. With the loss, user deposits are now covered only up to 35%, but funds in other pools remain unaffected. Platypus has already reached out to the hacker to negotiate a bounty in exchange for the return of the funds.

Platypus is an automated market maker (AMM) established atop the Avalanche blockchain and enables cryptocurrency traders to swap stablecoins. The DeFi protocol records up to $59 million in digital assets, which, according to DefiLlama data, is by far lower than its $1.2 billion peak recorded in March 2022. Commenting on the incident, a team member shared a post on Platypus’s Discover server, saying, “For now, all operations are paused until we get more clarity.” The protocol is working with the likes of Binance, Tether, and Circle to freeze the hacker’s funds and prevent further losses. So far, USDT has been frozen as discussions about compensating and reimbursing affected investors continue.