Following a COVER smart contract hack, major crypto exchange Binance announced they will use their funds to cover their users’ losses to the tune of USD 10.1m.
“In addition to the compensation plan from the COVER team, Binance will utilize the Binance SAFU Fund to recompense a total of [USD] 10,107,505 USD (distributed in 8,171,634.10 BUSD and 2,581.16 ETH) to affected and eligible users,” said the exchange in their recent post.
According to them, a large number of minted COVER tokens – greater than the circulating supply – were bought by arbitrageurs on decentralized exchanges and then deposited on Binance. This caused the price of the token to drop rapidly, resulting in “many Binance users experiencing significant losses.” Per CoinGecko, COVER dropped 17.3% in a day, 99.1% in a week, and nearly 100% in a month. Its price plummeted from nearly USD 916 on December 27 to USD 6.52 today (8:40 UTC).
The team behind the project will be able to provide the compensation as stated in their plan, but not the full amount as it’s simply too large, and Binance realized, said the post, that “a large number of Binance users who bought COVER on Binance after COVER’s proposed snapshot time […] would have their tokens become worthless.” Therefore, the exchange proceeded with their addition to COVER’s original plan.
As a reminder, on December 28, the decentralized finance (DeFi) insurance project Cover Protocol suffered an infinite minting attack, as the attackers abused an exploit on the protocol’s shield mining contract. At one point, an attacker tricked the system to mint 40.8 quintillion COVER tokens, then started selling as many as possible through 1inch.exchange. In total, the first exploiter stole around USD 4.4m of user funds, while the total damage was some USD 9.4m, said the post mortem.
“We are exploring providing a NEW COVER token through a snapshot before the minting exploit was abused,” stated the team. They will take a snapshot of all COVER balances at an Ethereum (ETH) block height of 11541218, and will distribute this new token at a ratio of 1 COVER-old = 1 COVER-new, as their compensation plan explains.
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