Balancer Might Arbitrage Itself to Rescue Inverse Finance’s Frozen Crypto

The plan would see Balancer raid its own trading pools before other arbitrageurs have the chance to.

AccessTimeIconMay 16, 2023 at 7:40 p.m. UTC
Updated May 16, 2023 at 8:52 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

A cadre of decentralized finance (DeFi) protocols are coordinating to rescue about $300,000 in crypto that got frozen during the biggest hack of 2023.

The owner of the crypto, Inverse Finance, fears arbitrageurs are gearing up to grab the hoard once it unfreezes on June 8.

  • Bitcoin Transaction Fees Slide Significantly Post Halving
    00:55
    Bitcoin Transaction Fees Slide Significantly Post Halving
  • 21Shares Exec on Consumer Facing Applications Powered by Blockchain
    00:51
    21Shares Exec on Consumer Facing Applications Powered by Blockchain
  • 21Shares Exec on Aftermath of the Halving, Future of Bitcoin Network
    15:24
    21Shares Exec on Aftermath of the Halving, Future of Bitcoin Network
  • World Chain Is a Blockchain 'Designed for Humans': Tools for Humanity Exec
    00:31
    World Chain Is a Blockchain 'Designed for Humans': Tools for Humanity Exec
  • A plan outlined Tuesday would see the automated market maker Balancer execute a “permissioned arbitrage” of its “bb-e-USD” pool “before anyone else can get to it,” according to a forum post from Balancer’s governance lead. Balancer had frozen the pool on an emergency basis in Mid-March when the borrow and lend platform Euler Finance lost $200 million to a hacker (who later returned the funds).

    Currently in discussion, the plan needs approval from Balancer’s community members, since the DeFi protocol would have to modify its mechanics. Organizers plan to hold a second vote on distributing the recovered tokens once the arbitrage is complete.

    DeFi’s lego bricks lock together in complicated ways, and the Balancer situation offers another example. It has already gotten the green-light from three other protocols: TempleDAO, which will loan Balancer specialty stablecoins that it needs to conduct the arbitrage; Euler, who patched the smart contract; and Inverse, which wants its money back.

    “Inverse is clearly very concerned about recovering their coins,” the pseudonymous Balancer contributor Tritium wrote in a forum post.

    People familiar with the matter said the months-long effort to recover Inverse's crypto was not an easy one, as there were plenty of tech challenges to overcome – not least of which being the finicky arbitrage smart contract itself. Add to this the fact that Inverse has been exploited multiple times in the past, making any chance at recovery invaluable.

    "Overall this has been one of the more positive exploit endings of the last year," said the Head of Growth for Inverse Finance, who goes by the screen name Patb. "First the Euler recovery and then this."

    Edited by Bradley Keoun.

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

    Danny Nelson

    Danny is CoinDesk's Managing Editor for Data & Tokens. He owns BTC, ETH and SOL.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.