Kyber Network, a decentralized finance (DeFi) platform that offers a liquidity protocol and a token swap service, has announced a major restructuring of its business operations following a devastating security breach that resulted in the loss of $48.8 million worth of digital assets in November 2023.
The hack, dubbed the Elastic exploit, targeted KyberSwap, the token swap service of Kyber Network, and drained $48.8 million worth of various tokens from its liquidity pools. The hacker exploited a vulnerability in the Elastic protocol, which was used by KyberSwap to adjust the supply and price of its tokens according to market demand.
The hacker managed to manipulate the Elastic protocol and inflate the supply and price of the tokens, then swapped them for other tokens at inflated rates, draining the liquidity pools. The hacker also stole an additional $6.6 million from front-run bots that tried to profit from the exploit.
The Elastic exploit was one of the largest DeFi hacks in 2023, and contributed to the staggering $1.8 billion worth of losses from Web3 hacks in the same year, according to a report by Finance Redefined .
The aftermath
Following the exploit, Kyber Network tried to negotiate a bounty deal with the hacker, but the hacker demanded complete control over the company, including all its assets and its governance mechanism, KyberDAO. Kyber Network refused to comply and decided to stand by its affected users instead.
Kyber Network launched the KyberSwap Elastic Exploit Treasury Grant Program on Dec. 20, 2023, to reimburse the impacted users up to 100% of their losses. The program will distribute funds (in United States dollar stablecoins) on Feb. 1, 2024. Impacted users will need to register for reimbursement between Jan. 11 and Jan. 23, 2024.
However, the reimbursement program came at a high cost for Kyber Network, as it had to make significant changes in its business operations to ensure its sustainability. Kyber Network temporarily paused its liquidity protocol initiatives and KyberAI project, which aimed to provide artificial intelligence solutions for DeFi.
Moreover, Kyber Network had to cut its workforce by 50%, a decision that was described as “heart-wrenching” by its CEO and co-founder, Victor Tran. Tran said that the departing employees were highly skilled and deeply committed to advancing DeFi and bringing value to end-users. He also said that Kyber Network will create a voluntary database to help them find new opportunities in the Web3 space.
The future
Despite the challenges, Kyber Network said that its core business remains robust, including KyberSwap’s Aggregator and Limit Order functions, which allow users to swap tokens at the best rates and set custom prices for their trades. Kyber Network also said that it will soon launch its Zap API, an innovative development that will enable dApps, wallets, and other projects to become the most convenient gateways for their users to access DeFi liquidity protocols.
Kyber Network also expressed its gratitude to its community, partners, and supporters for their continued trust and support. Kyber Network said that it will continue to work hard to deliver on its vision of building a world where everyone has access to decentralized and transparent financial services.
