Decentralized finance (DeFi) protocol Yearn.finance recently faced a challenging situation when a multisignature scripting error led to approximately $1.4 million of its treasury being unintentionally drained. The error occurred during a routine conversion of yVault LP-yCurve (lp-yCRVv2) tokens, accrued from vault performance fees, into stablecoins on the decentralized exchange CowSwap. As a result of significant slippage, Yearn received 779,958 DAI yVault (yvDAI) tokens, causing a 63% reduction in liquidity pool value compared to the lp-yCRVv2’s spot price at that time.
The affected funds, according to Yearn, were strictly protocol-owned liquidity in its treasury, with customer funds remaining untouched. Yearn has actively engaged with the community, requesting that any arbitrage traders who profited from the event consider returning a reasonable amount to Yearn’s main multisig. Additionally, the protocol has reached out directly to some traders through on-chain messages. In response, one trader has already sent back 2 Ether (worth around $4,500), acknowledging the mishap and their modest profit from the situation.
To avert similar incidents in the future, Yearn plans to segregate protocol-owned liquidity into specific manager contracts, introduce human-readable output messages, and enforce stricter price impact thresholds.
Disclaimer: Please note that the information provided in this article is based on the referenced research articles. It is essential to conduct further research and analysis before making any investment decisions. The cryptocurrency market is highly volatile, and investors should exercise caution and consult with financial professionals before engaging in cryptocurrency trading or investment activities.
