Euler Finance attack: How it happened, and what can be learned

Since they become worth more than the underlying coins as the deposit earns interest, eTokens don’t have a 1:1 correspondence with the underlying asset in terms of value.eTokens. But if they do this, the protocol will send them debt tokens to balance out the assets created.

If a user’s health score falls below 1, then an increasing discount is given out to the liquidator based on how bad the health score is. The worse the health score, the greater the discount to the liquidator. This is intended to make sure that someone will always liquidate an account before it accumulates too much bad debt.

After receiving the 30 million DAI, borrower deposited 20 million of it to Euler. Euler then responded by minting approximately 19.6 million eDAI and sending it to borrower. In response, Euler minted another 200 million dDai and sent it to borrower, bringing borrower’s total debt to $400 million. Next, Euler minted an additional 5.08 million dDAI and sent it to liquidator. This brought liquidator’s debt to $260 million. Finally, Euler transferred approximately 310.9 million eDAI from borrower to liquidator, completing the liquidation process.

According to a March 13 report from Omniscia, the primary problem with Euler was its “donateToReserves” function. This function allowed the attacker to a standard ERC-20 “transfer” function. This seems to imply that the attacker could have transferred their eTokens to another random user or to the null address instead of donating, pushing themselves into insolvency anyway.However, the attacker did choose to donate the funds rather than transfer them, suggesting the transfer would not have worked.

A representative from DeFi developer Spool told Cointelegraph that technological risk is an intrinsic feature of the DeFi ecosystem. Although it can’t be eliminated, it can be mitigated through models that properly rate the risks of protocols.to Spool’s risk management white paper, it uses a “risk matrix” to determine the riskiness of protocols.

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The March 13 flash loan attack against Euler Finance resulted in over $195 million in losses. It caused a contagion to spread through multiple decentralized finance (DeFi) protocols, and at least 11 protocols other than Euler suffered losses due to the attack.

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