Decentralized finance has a control problem it must solve if it is to become the economic force supporters believe — and opponents fear — that it can become. And fear they do. In March, Deloitte wrote that in DeFi “traditional financial services face a potentially existential moment that may challenge traditional business models,” adding that it “represents the most significant disruptive force on the global financial system.” Not to be outdone, the International Monetary Fund in April added that the “absence of governing entities means DeFi is a challenge for effective regulation and supervision.” That said, DeFi appears to have developed an Achille’s heel, of sorts, in the form of slow reaction time, and solving the weakness may be something of a Catch-22. While many, if not most, DeFi projects are still not truly and fully decentralized, with developers having what amount to backdoor master keys, the ostensible goal is for them all to be fully run by self-executing smart contracts. Which would make reacting quickly to problems virtually impossible, as that requires centralized control. Which is a problem in any business, but especially finance. And particularly in a segment with the vulnerability to hackers, DeFi has shown, with more than $3 billion stolen in 2022 alone, according to Chainalysis. Leaving aside security holes, consider court orders, money laundering responses, a sudden crash in exchange rates — any number of issues that require a fast response. That problem was on full display again Thursday night (Nov. 3), when play-to-earn blockchain game developer Gala Games revealed that it had effectively hacked its own project, “stealing” more than $2 billion to prevent actual thieves from using a potential exploit it found in its code. It began at 4:54 p.m. when blockchain security firm PeckShield noticed a huge outflow of funds occurring on a liquidity pool supporting the firm’s cross-chain bridge, which allows users to trade crypto quickly and cheaply for the GALA tokens.
Full story : Gala Games’ self-hack of its own project for $2 billion underlines DeFi’s security problems.
