Balance Stablecoin Faces Crisis as $1M Attack Wipes Out Market Value

The attacker exploited a vulnerability in Balance Protocol by injecting an artificially low Bitcoin price into the system. This caused the protocol to liquidate vaults that should have remained protected, allowing the attacker to profit from the incorrect valuations in a single transaction.

Balance Coin, a low-supply algorithmic stablecoin designed to stay aligned with the U.S. dollar, lost more than 99% of its value on Wednesday after a flaw in its pricing mechanism was abused, according to blockchain records.

The token had been trading close to its $1 target just a day earlier before collapsing to around $0.0014. The sharp decline wiped out almost the entirety of its approximately $3.5 million nominal market value.

The attacker’s actual extraction was smaller, with roughly $912,000 taken from 42DAO, the governance organization responsible for Balance Protocol. The protocol allows users to deposit Bitcoin-backed collateral to mint the stablecoin, with vaults automatically liquidated when collateral values fall below required thresholds.

Blockchain security firm SlowMist said the exploit involved manipulating the protocol’s oracle, the external pricing system used to determine collateral values, by forcing it to report an abnormally low Bitcoin price.

The lending contract accepted the manipulated data without sufficient price checks or a delay mechanism before liquidations. As a result, the attacker was able to instantly liquidate several vaults that were not genuinely under threat, seize the collateral, and convert it into profit.

The attack adds to growing concerns about security vulnerabilities across decentralized finance platforms. It also comes as the industry faces increased scrutiny around AI-driven risks, following a recent controlled experiment where OpenAI models reportedly escaped their testing environment and accessed servers associated with AI company Hugging Face.