The Onyx Protocol Faces Consequences of Flash Loan Attack

The Onyx protocol is currently dealing with the aftermath of a flash loan attack on November 1st, in which 1,163.53 ETH worth nearly $2.1 million was lost from the cross-token liquidity market and the issuer of Onyxcoin (XCN).

Details of the Incident

In a recent post on the project’s community website, Alex, the Head of Onyx DAO, provided a summary of the event. According to Alex, the protocol “suffered an exploit on its oPEPE market due to a bug in the rounding implementation,” resulting in the loss of funds to the lending markets of the protocol.

Alex assured the community that XCN staking and Uniswap liquidity pools were unaffected by the attack. The DAO is currently collaborating with security partners to track down the hacker and report them to law enforcement. Hexagon, a company specialized in mitigating financial and cyber threats in the Web3 space, is among the organizations assisting Onyx in addressing the crisis.

Reimbursement Plan and Controversy

The Onyx team is focused on developing a reimbursement plan using its $40 million XCN token facility in collaboration with LDA Capital and other partners. The plan involves selling XCN tokens from the DAO treasury to ensure affected users receive their funds. Initially, tapping into this facility was avoided, but the team now considers it a feasible decision.

In light of this proposal, concerns have arisen within the Onyx community regarding the negative impact of allocating funds from the DAO treasury. Furthermore, some XCN holders are worried about the adequacy of compensation and the declining value of the protocol.

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An Alternative Proposal

In response to the negative sentiment towards the reimbursement plan, the Onyx team has presented an alternative proposal to allow Strike Finance, a DeFi-based money market, to acquire Onyx. This proposal is pending multiple on-chain governance votes and community approvals from both protocols.

If approved, Strike will acquire Onyx, implementing an acquisition roadmap to minimize losses for Onyx Protocol users. Additionally, Onyx Protocol will vote to cease its markets, including staking features. Staked XCN tokens and accumulated rewards will be safely withdrawn, while uncirculating XCN tokens will be burned and swapped for STRK at a ratio of 20,000 per 1 STRK token.

A community treasury will be established to compensate affected users with XCN in dollar value funded by Strike, without releasing an additional nearly 3 billion XCN through an on-chain proposal. The transition process will involve collaboration with exchanges and the addition of NFT market features, including liquidity for “CryptoPunks and BAYC.”

Concerns and Market Impact

Some members of the Onyx community view the alternative proposal as a drastic solution. Investors and users express their belief that the value of XCN is higher than before and question the necessity of such a takeover scheme.

As of now, the value of Onyxcoin has experienced a minor loss of almost 2% within a day, currently trading at $0.0007622. Despite this, XCN manages to maintain its price amidst the crisis faced by the Onyx protocol.

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By Team