Someone is draining cream finance of all its liquidity, forcing liquidations for people who borrowed stablecoins against their crypto.
This morning I got a very strange alert from one of my custom-built tools for DeFi applications. Apparently, my supplied assets were going through the roof APY-wise.
Usually, I would assume that to be great news. But this time, it was shocking. I was shocked to see that apparently, you can now get above 140% APY for supplying stablecoins on C.R.E.A.M Finance.
What is more concerning is that the dramatic hike in interest rates happened not gradually but all at once.
Interest rates went up for all my supplied assets: USDC, BUSD, DAI, and BTC.
If you know how most lending protocols work, you understand that this happens if the utilization rate of an asset goes up. The more a supplied asset is actually being borrowed by a third party, the higher the utilization rate.
Interest rates this high mean the utilization rate must be close to 100%. This, in turn implies that all liquidity is being borrowed right now. But who would do that?
I went to the protocol page to check what the current liquidity was like. Holy cow! For some assets, there was just no liquidity left!
Look at that! No BNB left in the protocol. That there was no more BNB left for lending has been the state for a few days now. I tried to do research on why that was, but nobody was able to answer (and no one even tried).
But as of this morning, assets like BUSD, USDT, USDC, BTC (and many more) have essentially been drained. There is 0 BTCB left, only a few cents of USDT.
So you could now come to the conclusion that supplying assets to C.R.E.A.M Finance currently, is a very lucrative option. But here is the catch: If there is no liquidity, no one can withdraw their assets. So if you are currently supplying USDT, you are free to redeem $0.14 maximum. I am sure that will make you happy.
If you are in one of the affected markets, your funds are essentially locked.
And there is another problem. A huge one. As you can see, approaching 0 liquidity does not have the same effect on every asset. The borrow APY for BTCB hovers just above 40%, whereas stable-coins currently have an interest rate of 180%+.
That means that anybody who borrowed stablecoins against crypto-assets like BTC are now in a very hot seat. Because their borrowed stable assets will outgrow their supplied crypto-assets way too fast to be sustainable. Those people are currently running a risk of being liquidated over the next few days, if those rates persist.
To me, there are currently two options. Either the attacker wants to force liquidations and is probably in a good place to execute those liquidations. In that case, we will most likely see an increase in liquidations over the next few days. If you do not have any sort of alerting set up for your DeFi platforms, you might not even notice. Remember, a rate hike like this is very unusual. People may only check their wallets on a weekly basis, maybe even less frequently.
Option two would be that the attacker never intends to repay the loan. Maybe they found a way to drain liquidity without having to supply collateral. But so far, I haven’t found an indication of that. In fact, the internet is being very quiet about this. But this is still going on…
Right now, it seems to me that forcing people to get liquidated is the target of this attack.
It is very scary for sure. But I am afraid currently, it doesn’t seem to be illegal. This is just how the protocol works. So anybody with a lot of money could pull this off. Just borrow all the assets available and force people to repay their loans or stand to get liquidated.
This may go on for a very long time as more and more people are being forced to take action. Some might not be able to meet their obligations. If they cannot repay their loans, I am sure the shark is waiting just around the corner to grab their assets.
Stay safe, everyone.
