The Multichain cross-chain protocol experienced a major setback that significantly disrupted decentralized finance (DeFi) activities on Fantom. Since the debut of Multichain’s issue in May, the Fantom Foundation has worked hard to reassure users of its association with the protocol.
However, early indicators suggest that issues with Multichain have severely affected Fantom’s DeFi operations, leading to asset unpecking and project closures.
DeFi Protocol Shuts Down Operations and Asset Deletion
Assets, such as Bitcoin, USDC, Ethereum and various stablecoins bridged via Multichain on Fantom, have drastically deviated from their true values.
Web3 Knowledge Graph Protocol 0xScope noted the discrepancy in early June, following the illicit transfer of $126 million in Multichain user funds to unidentified addresses. Most of the stolen assets came from the Fantom Bridge.
0xScope Underline how traders were dumping their Fantom-based stablecoins at a loss. One trader in particular reportedly suffered a loss of around $200,000.
“Due to the multi-chain freeze, people are selling stablecoins (fUSDT, etc.) for FTM and depositing FTM on CEX to evade the Fantom protocol! [stablecoins are] is now trading at ~$0.7.
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The depegging of assets mainly impacted Geist Finance, a fork of Aave on Fantom.
The decentralized liquidity market protocol has declared that the Multichain exploit resulted in irreversible losses. This is a result of multi-chain bridged assets now trading at just 22% of their true value.
“Following confirmation from Multichain that the funds will not be recovered, we are announcing that Geist will not reopen. Because Chainlink oracles track the real value of USDC, USDT, WBTC or ETH, they are not aware of the real value of Multichain assets,” explained Geist Finance.
Andre Cronje, co-founder of Fantom Network, acknowledged the impact of the Multichain incident. He lamented that the assurances of decentralization, geolocation distribution and access given by the Multichain team turned out to be false.
“The multi-channel was a blow… Don’t trust, verify (telling me this)… [We are] look for other backstops or help in the recovery, even using the foundation’s cash. Until we have more data, we simply cannot give concrete confirmation. We will not leave this as it is,” Cronje said.
Cronje also pointed out that the Fantom Foundation is coordinating with affected parties to recover lost assets. He confirmed contact stable issuers such as Circle, Tether and TUSD.
The Foundation has asked these companies to freeze assets in Multichain wallets.
“We have verified that approximately $60 million USDC and $2 million USDT have been frozen,” the Fantom Foundation said.
Fantom Total Locked Value (TVL) crashes
As a result of these events and the halting of operations of DeFi protocols, the total value of locked assets (TVL) on Fantom dropped.
On-chain data from DeFiLlama shows Fantom’s TVL is down more than 80%, falling to $69.03 million from its high of $364 million in May.
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Fantom’s decentralized exchanges also saw a sharp drop in trading volume. Data from DeFiLlama indicates that the network’s average weekly volume throughout June was less than $100 million.
Although there was a slight increase in the first half of this month to over $200 million, this figure is significantly below its February 2022 high of $5.2 billion.
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