Decrypting DeFi is Decrypt’s DeFi email newsletter. (art: Grant Kempster)

Wormhole, a protocol that allows users to transfer crypto assets across blockchain networks, was exploited for $320 million last week. The breach was specifically related to how the cross-chain bridge was connected to Solana (though it can connect between a ton of other blockchains). 

Whenever users want to move, say, ETH from Ethereum over to Solana, they have to lock up the ETH and in return get Solana-based Wrapped ETH (WETH). These two assets are thus 1:1 pegged; 1 ETH equals 1 WETH. 

But a flaw in the protocol’s code allowed the attacker to freely mint 120,000 WETH on the Solana side without having to lock up any ETH at all. With that WETH in hand, the attacker then moved at least 93,750 WETH back across to the Ethereum network and used it to claim real ETH. The remaining WETH was converted to Solana’s native coin SOL. 

The attack also affected the price peg of WETH on Solana, disrupting several Solana projects that interacted with this wrapped asset. 

Hacks are nothing new in the crypto world, but this attack was interesting for a few different reasons. First, this was the third attack on a crypto bridge this year, after Multichain and Quibit

Second, it plummeted the price of Solana’s native coin, despite the exploit being primarily an issue with Wormhole (rather than Solana’s code).

That steep drop beginning just before February 3 was roughly when the hack occurred, spooking the market. Source: CoinGecko

Third, and perhaps most interesting, the Wormhole exploit introduced…

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