DeFi loan platform Alchemix pauses alETH contract after bug

DeFi loan platform Alchemix has paused one of its contracts after a bug inadvertently allowed certain withdrawals, leading the vault to become undercollateralized. 

Alchemix is a rather innovative and complex platform in the DeFi space. When you take a loan, the collateral you use is put to work via yield farming — a way to generate yield in DeFi. The interest this generates is used to pay back some or all of the loan.

alETH is a token backed by ether (ETH). DeFi users can swap other tokens that are pegged to the value of ETH for alETH. They can then use alETH for loans on the Alchemix platform, or simply trade it like any other token.

During today’s harvest — when token rewards are gathered and handed out proportionally to those holding tokens in the pool — a bug in the system led to withdrawals that shouldn’t have been allowed. 

“TL;DR of the Alchemix debacle: The last harvest returned 100% of the ETH funds to alETH borrowers treated by the system as repaid debt, thereby allowing withdrawals. In short, alETH is currently undercollateralized,” tweeted a pseudonymous researcher known as FAANGanon, who works for crypto trading firm Alameda Research.

On Alchemix’s Discord channel, billionaire Mark Cuban weighed in, acknowledging the “challenging situation” but encouraging the team to tweet about it and make an announcement in Discord. “More eyes on Alchemix than whoever hangs out here on Discord,” he said.

Alchemix then tweeted that there had been an incident with the alETH contracts and that the project was working on a solution and a post-mortem. It said that the contract has been paused, adding that, “funds are safe.”

The Alchemix token price is down 15% in the last 24 hours, at a current price of $549.

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