After a $3.8M hack, DeFi protocol Onyx gained community approval to relaunch Onyx core

What if a hack could change the way we view decentralized finance forever?

Onyx, a once prominent player in the Ethereum-based lending market, faced a staggering setback recently. They announced a significant shutdown of their lending segment after a major security breach led to a loss of $3.8 million. This wasn't just a random attack; it took advantage of well-known security vulnerabilities that Onyx has failed to fully address.

The same vulnerability was used to attack Onyx back in October 2023. This is a huge punch in the gut for the crypto community and a huge wake-up call for the community to view the security issues surrounding crypto more seriously, especially with an increasing sophistication of cybercriminals exploiting weakness in the crypto ecosystem.

The silver lining

Onyx is set to relaunch as Onyx Core. They're making a bold move to emphasize governance and community involvement. The restructuring will involve running the Onyx Protocol as a close-ended lending protocol on Onyx Core, allowing users to wrap non-fungible tokens, real-world assets (RWA) and crypo assets. This move would prevent future exploits, like the one that occurred through a NFTLiquidation contract vulnerability, which was previously used in an attack in October 2023.

This Onyx Improvement Proposal (OIP-46), titled "Relaunch Onyx Core", was introduced on the same day as the $3.8 million security exploit. In the announcement, Onyx said that they would be shutting down their Ethereum-based lending market and reimbursing the lenders in full.

The OIP-46 proposal announcement has received the full blessing from the Onyx community members, with no votes against the proposed changes. The relaunch will start on October 1.

As part of the relaunch, the Onyx team will be issuing a revised white paper and focus on running Onyx Core as a close-ended lending protocol.

Hacking targeting at DeFi platforms

This restructuring comes at a time when crypto hacks have been on the rise, with centralised exchanges being the primary targets, accounting for losses exceeding $2.1 billion in 2024.

According to security firm PeckShield, the hackers took loot a total of 4.1 million virtual USD (VUSD), 0.23 Wrapped Bitcoin (WBTC), $5,000 worth of the DAI stablecoin,$50,000 worth of the USDT stablecoin from Onyx, totalling over $3.8 million in losses.

The vulnerability can be exploited when a DeFi protocol has an "empty market" - a market with no liquidity - which typically occurs when a new market is launched.

Cases of DeFi exploits have risen in numbers in recent times. Just days before the Onyx attack, Bedrock, a liquid staking protocol, lost over $2 million due to a vulnerability in its uniBTC contract. Another decentralised platform, Bankroll Network, also suffered the same fate, after it suffered a $230,000 loss after hackers exploited a faulty "buyFor" function.

The frequency of crypto hacks has surged in 2024, with $542.7 million stolen in the first quarter alone—a 42% rise compared to the same period in 2023. July was especially devastating, as over $266 million was taken in 16 separate attacks. One of the most significant incidents involved a $230 million theft from the Indian exchange WazirX, marking the second-largest hack of the year.