Coinbase’s $1 Million Profit from Curve Exploit Sparks Outrage, Victims Denied Reimbursement
In Brief
Coinbase has come under scrutiny for its $1 million profit gained inadvertently during a $73 million hack on Curve Finance.
Despite most stolen funds being returned, Alchemix claims Coinbase has refused to reimburse victims, sparking a debate on the ethical responsibilities of cryptocurrency platforms.
The involvement of Coinbase in a DeFi exploit highlights the challenges of asset recovery in the aftermath of crypto hacks.
A recent DeFi exploit in July, which drained $73 million from Curve Finance, has put Coinbase, the largest U.S. exchange, in a contentious position.
During the attack, a trading bot noticed a pricing imbalance on Curve’s platform and paid 570 ETH (worth $1.06 million) as a fee to make sure its trade was processed quickly. This payment went to Coinbase, which was operating as the Ethereum validator at the time.
While most of the stolen funds have been returned to victims, Alchemix, one of the affected protocols, has claimed that Coinbase has refused their requests to reimburse the money it earned through the hack. Alchemix argues that Coinbase is holding stolen funds and accuses the exchange of benefiting deliberately from the exploit.
The situation highlights the ongoing tension between the “code is law” ethos (if a smart contract’s code allows it, it’s considered “legal”) of blockchain-based finance and the lack of recourse for crypto theft victims.
According to CoinDesk, Alchemix, which alleges that Coinbase is retaining stolen funds, claims that Coinbase’s representatives have conveyed that there is no legal obligation on their part to provide reimbursement to anyone.
Coinbase’s Windfall from Curve Hack
During the Curve a few months ago, which resulted in a $73 million loss, a bug in the code of certain liquidity pools was exploited. The pools contained ETH and alETH, an ether derivative issued by Alchemix. The attacker drained most of these tokens, leaving a significant imbalance in the pool.
This imbalance created an arbitrage opportunity, allowing astute traders to buy alETH at a substantial discount. A trading bot capitalized on this opportunity, purchasing the remaining alETH in the pool for a small amount and quickly converting them into frxETH, another ETH derivative, and then ETH itself.
While the trading bot only gained 43 ETH from these transactions, the majority of the profits went to the validator, which, in this case, was Coinbase. As CoinDesk explained, Coinbase received an unusually large fee of 570 ETH for prioritizing the bot’s transaction over others.
This strategy of arranging blockchain transactions for quick profit is called maximal extractable value (MEV). The alETH arbitrage fee was the second-largest MEV payout ever in Ethereum’s history, as reported by Flashbots, a leading MEV company.
Curve Exploiter Returns Stolen Funds, but Coinbase Refuses
After a public bounty and an ultimatum, the Curve exploiter returned $22 million in stolen ETH and alETH to Alchemix. Good-faith actors, known as white hats, also returned $13 million worth of assets. A trading bot operator returned $5.5 million worth of ETH. However, Coinbase, which earned $1 million from the exploit, has not followed suit, according to Alchemix.
Coinbase’s role in this exploit raises questions about whether the company should return the funds it profited from inadvertently or if these earnings are rightfully theirs. The controversy underscores the complexities of asset recovery in the aftermath of crypto hacks, where beneficiaries often end up in unexpected positions, earning fees for their role in running blockchain infrastructure.
The debate over Coinbase’s actions in this case reflects a broader challenge within the crypto ecosystem, where the line between decentralized autonomy and responsibility remains blurred, leaving victims seeking justice in a decentralized and evolving landscape.
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About The Author
Agne is a journalist who covers the latest trends and developments in the metaverse, AI, and Web3 industries for the Metaverse Post. Her passion for storytelling has led her to conduct numerous interviews with experts in these fields, always seeking to uncover exciting and engaging stories. Agne holds a Bachelor’s degree in literature and has an extensive background in writing about a wide range of topics including travel, art, and culture. She has also volunteered as an editor for the animal rights organization, where she helped raise awareness about animal welfare issues. Contact her on [email protected].
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Agne is a journalist who covers the latest trends and developments in the metaverse, AI, and Web3 industries for the Metaverse Post. Her passion for storytelling has led her to conduct numerous interviews with experts in these fields, always seeking to uncover exciting and engaging stories. Agne holds a Bachelor’s degree in literature and has an extensive background in writing about a wide range of topics including travel, art, and culture. She has also volunteered as an editor for the animal rights organization, where she helped raise awareness about animal welfare issues. Contact her on [email protected].
