Balance Coin (BLC), designed as an algorithmic stablecoin to reflect the value of the U.S. dollar, witnessed a staggering drop of over 99% following allegations concerning a potential exploit related to 42DAO from blockchain security firms.
Summary
- The value of Balance Coin fell by more than 99% after its downfall was associated with the 42DAO exploit reported by security firms.
- It is suspected that attackers minted unbacked BLC and exchanged these tokens for USDT and BTCB via PancakeSwap liquidity pools.
- Two dubious transactions on the BNB Chain allegedly drained around $915,000 as Balance Coin quickly departed from its intended peg.
PeckShield indicated that this incident led to estimated losses of about $915,000, linking the BLC crash to an exploit that affected 42DAO, the decentralized organization tied to the Balance Protocol ecosystem. The firm noted that Balance Coin “has dropped by -99%” following the confirmed attack.
The price of BLC fell sharply from its designated $1 peg to a historic low of $0.001209 on July 22. As per the latest information from CoinMarketCap, BLC was trading at approximately $0.00247, signifying a 99.75% decline over 24 hours, with prices fluctuating between $0.001209 and $0.9955 during this timeframe.
Security firms investigating suspicious activity involving two transactions
TenArmor reported two questionable transactions linked to GemJoin and 42DAO on the BNB Chain. Onchain data highlighted in their analysis showed that the first transaction created about 4.5 million BLC from a null address before funneling the tokens to PancakeSwap V2.
The attacker allegedly swapped the newly minted BLC for Binance-pegged USDT, also known as BSC-USD, and Binance Bitcoin (BTCB). Around two hours later, a subsequent transaction reportedly used the same method to mint an additional 5,900 BLC, extracting further assets from liquidity.
This unauthorized minting expanded the BLC supply without the regular controls imposed by the protocol. As these newly generated tokens entered decentralized exchanges, the increased selling pressure severely impacted BLC’s price, detaching it from its dollar peg.
PeckShield approximated the losses to be around $915,000 based on their onchain activity analysis, but a comprehensive post-incident report from 42DAO has yet to be disclosed publicly.
Balance Coin loses its tie to the U.S. dollar
Within the Balance Protocol ecosystem, Balance Coin serves as the primary stablecoin. CoinMarketCap classifies BLC as an algorithmic stablecoin on the BNB Chain, purposed to maintain a stable value against the U.S. dollar, with 42DAO presenting the token as a key element of its overarching financial framework.
The token’s value plunge left it trading at a fraction of its intended worth. Although there was a slight recovery from the lowest intraday price, it remained over 99% below the levels observed before the reported exploit.
This incident reflects similar occurrences where unauthorized token generation induced sudden liquidity dilemmas in the market. As noted by crypto.news, Resolv’s USR stablecoin lost its peg in March when an attacker minted millions of unsupported tokens and traded them in DeFi markets, prompting Resolv to suspend protocol functions while investigating the breach.
Unauthorized minting becomes a common attack strategy
Numerous crypto projects have faced significant price drops due to unauthorized token generation. For example, MAPO experienced a 96% decline in May when attackers leveraged a bridge vulnerability to create unauthorized tokens and sell them into decentralized exchange liquidity.
In another case, Stake DAO suffered an exploit in May, where an attacker purportedly minted trillions of vsdCRV tokens before converting them into ETH. Although these incidents involved various technical flaws, they all permitted attackers to generate tokens outside of standard supply protocols.
For Balance Coin, the urgent focus is on the alleged exploit linked to 42DAO and the status of BLC following its drastic depegging. Available onchain reports highlight two suspected attack transactions.
