The Day DeFi Changed Forever
gm Bankless Nation,
Sunday's exploit struck at the heart of DeFi. The entire industry is going to have to move forward from this exploit with a new mindset – and a new design. In today's essay, David Hoffman lays out the path. Join Bankless Premium to dive deeper,
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OPINION
The Day DeFi Changed Forever
Although not even in the top 10 crypto hacks in terms of dollar-size, the LayerZero<>KelpDAO<>Aave exploit will go down in history as the most consequential DeFi hack of all time. The entire onchain industry is now on a completely different path than we were before. The implications to crypto come in two buckets:
- DeFi needs to be Rearchitected
- Validators/Security Councils will need to standardize recovery operations (or give up control)
DeFi Needs to be Rearchitected The LayerZero<>KelpDAO<>Aave exploit occurred because each component in their composable DeFi stack trusted each other.
- KelpDAO trusted that LayerZero’s DVN wouldn’t ever be compromised (it got compromised).
- LayerZero trusted KelpDAO to choose the appropriate level of security (they didn’t)
- Aave trusted KelpDAO’s rsETH collateral to always be fully backed (it wasn’t)
Trust lowers the costs of transactions and improves the welfare of everyone involved. So, it's enticing to assume these protocols are operating inside of trustworthy environments. But they are not. Permissionless systems are inherently adversarial environments. Building under the premise that 99.99% of users are good doesn’t change the fact that it only takes one bad actor to attack the system. The LayerZero<>KelpDAO<>Aave structure forgot this paradigm...
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WHAT YOU MISSED
Productive Money
📈 The Asset
🏛️ The Protocol
📱 The Apps
🤫 The Privacy Stack
🐸 The Culture
💽 The Tech
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WEEKLY ROLLUP
DeFi Hit by $300M Hack
Markets are hitting new highs, but crypto just took a major hit.
Ryan and David break down the $300M KelpDAO exploit and why it exposed deeper flaws across DeFi and Layer 2s, including Arbitrum’s controversial decision to freeze funds.
They also explore whether AI will drive deflation or inequality, unpack a new bullish ETH thesis, and debate why the biggest risks in crypto may be building beneath the surface.
Tune into this week’s Rollup! 👇
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