Polkadot’s DeFi platform stablecoin, Acala Dollar (AUSD), lost 99% of its value on Sunday after hackers exploited a bug. They then issued 1.3 billion tokens, valued at around $1.6M. As a result, AUSD lost its U.S. dollar peg of around $1.03 and dropped to $0.009. Acala’s development team is working to retrieve the pilfered funds and restore the dollar peg.

Acala token hack

A new liquidity pool known as iBTC-aUSD was launched just hours before the attack. The Acala development team cited “misconfiguration” as the weak point used to infiltrate the liquidity pool. 

By Sunday night, developers were tracking wallet activity associated with the raid. On-chain sleuths also reported that while there is one hacker in particular who minted the tokens, there were also several other hackers who have stolen thousands of tokens simultaneously. 

Developers are partnering with white-hat hackers to retrieve the tokens. They are working to resolve and, as of this writing, there is still a wallet containing 1.27B AUSD.

Stablecoin price

Stablecoins have raised the ire of many investors over the last six months, raising questions about its moniker, stablecoin. Several depeggings have occurred in 2022, such as TerraUSD and DEI, calling into question the entire stablecoin business model. 

As YouTuber Wendy O has stated, “we’re still in beta with every single aspect of Bitcoin, crypto, NFTs… we all need to do a better job at practicing risk management.”

Launching new blockchain technologies is fast and furious right now. While these advancements are important, and decentralization is crucial for financial and digital freedom, investors need to stay cautious and patient with these volatile assets.

Why do investors buy stablecoins?

Stablecoins are pegged to the U.S. dollar; that is, no matter which direction the market goes, a stablecoin is always valued at $1.00. Stablecoins are useful for moving crypto around in the market quickly and easily while stabilizing an investor’s portfolio in a highly volatile market.  

Stablecoins also have a central purpose in DeFi lending. Popular stablecoins such as USDT and USDC are lent to borrowers on a decentralized exchange (DEX) such as Compound or AAVE. The DeFi industry is valued at $200 billion and Compund and AAVE are valued at $15 billion each. These dexes have huge liquidity pools, able to yield as high as 30% APY for investors.