The wild world of DeFi has seen its share of hacks and hijinks, but nothing quite like what befell the lending service Euler Finance in recent weeks. The saga began in mid-March when a hacker used flash loans—a peculiar type of ultra-short-term loan unique to DeFi—to trick Euler’s protocol into paying him nearly $200 million. Normally, this would be the end of the story, leaving the Euler team with nothing to do but cry in their beer over becoming yet another victim of a major DeFi hack.
But that’s not how it played out. According to a person familiar with the ordeal, the Euler folks’ initial response was indeed despair since, as we know, crypto transactions are irreversible and most hackers hang their hats in lawless places like Russia or North Korea. Soon, however, Euler had a team of fixers working to recover the money, including law enforcement figures and law firm Morrison Foerster (aka MoFo), which is well-versed in transnational negotiations.
What followed was a fraught back-and-forth that went on for weeks as Euler’s allies leaned heavily on the hacker, who the person familiar described as a mentally unstable obsessive, into doing the right thing and returning the money. This campaign reportedly involved persuading the hacker “Jacob” that, even though he was based in Russia, he had ticked off some very powerful people who could lean on local law enforcement to come nab him. After days of such messages, which were partly a bluff, Jacob finally wigged out to the point that it was best he return the funds, which consisted of DAI, USDC, and wrapped Ethereum and Bitcoin.
The upshot is that Euler, one of the flagship projects in DeFi, is now in the process of returning millions of dollars to customers who likely believed—understandably—their funds were gone. The episode underscores how DeFi, where investors plunk down money on automated platforms in hopes of outsize returns, remains susceptible to spectacular hacks. But it also shows how DeFi projects that take venture capital—a controversial practice in a field that professes ideals of decentralization—can turn to friends in high places at times of crisis. Euler acknowledged as much in a Tuesday Twitter thread that thanked the likes of Paradigm, Haun Ventures, Variant, and MoFo for saving their bacon.
Finally, if you want a less sunny view of VCs, check out this scorching piece by Tezos cofounder and Fortune guest columnist, Kathleen Breitman. Or simply take a moment to cheer that, in the case of Euler, the good guys for once prevailed over a Russian hacker.
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Bob Lee, the chief product officer of crypto-based global payment startup MobileCoin and the creator of Cash App, was stabbed to death in San Francisco. (NYT)
Singapore is planning new guidelines to help the country’s banks vet crypto clients as part of a broader effort to create a regulatory regime for the industry. (Bloomberg)