On June 28th, 2021, SafeDollar’s ($SDO) value dropped to zero after a cyberattack. Although stablecoins, like SafeDollar, have their value tied to normalized assets like fiat currency (e.g. USD or euro) or precious metals, their value can still fluctuate wildly from day to day. Take bitcoin for example; it rose to a six-month high on April 14th, 2021 at $64,859 only to fall to $34,344 less than 40 days later. With the recent crash, SafeDollar and stablecoins clearly aren’t as stable as we thought—so what does that mean for the blockchain?
Stablecoin’s impact on the blockchain
- Stablecoin vs. traditional cryptocurrency
- The attack on SafeDollar
- Scary insecurities in the Polygon blockchain
- Impact on blockchain for businesses
Stablecoin vs. traditional cryptocurrency
The main difference between cryptocurrencies, like Bitcoin and Ethereum, and stablecoins comes in their volatility. Stablecoins are backed by some type of commodity, usually fiat currency or precious metals like gold and silver, making them, presumably, a less volatile option. This stability is why businesses are examining them as an alternative payment method.
Bitcoin and Ethereum, on the other hand, are volatile by nature. They work kind of like stocks on the stock market in that their value is constantly changing. They’re naturally riskier, which tends to draw private traders.
The attack on SafeDollar
Early in the morning on June 28th, 2021, SafeDollar was hit by a cyberattack where the hacker essentially forged SafeDollar coins and then deposited those into the account, receiving a payout and decreasing the value of the pooled assets until SafeDollar was worth $0. According to SafeDollar’s report, “Since PLX is a deflation token, everytime [sic] user deposits to the pool 0.15% of the amount will be burnt.” In the end, the attacker got away with about $250,000.
The particulars of this attack seem to be similar to distributed denial of service (DDoS) attacks that many companies deal with in cybersecurity. During these attacks, bots overwhelm servers with traffic, causing them to overload and shut down. Similarly, the attacker overwhelmed SafeDollar’s system by repeatedly depositing stablecoins into and withdrawing them from the pool, confusing the system until it drove up the price of SafeDollar, at which point the attacker sold their currency. It’s unclear whether the attacker used bots to do this, but it certainly wouldn’t be outside the realm of possibility.
This wasn’t even the first attack on SafeDollar in the month of June. Andrew Asmakov, an experienced cryptocurrency journalist for Decrypt notes, “This is SafeDollar’s second major attack since it launched earlier this month. An attack on June 20 resulted in the loss of 9,959 SDS, the protocol’s share tokens, worth around $95,000 at the time.” Two fairly major attacks in its first month doesn’t bode well for the emerging stablecoin.
Scary insecurities in the Polygon blockchain
SafeDollar was maintained on the Polygon blockchain, which faced some major issues in the wake of the attack. First, they obviously had to find a patch for the vulnerability the hacker exploited in the system. They also needed to figure out how to compensate investors that lost money in the attack and communicate that to their stakeholders. And finally, they had to determine how and when they’ll relaunch SafeDollar in order to make sure this kind of attack isn’t repeated. They outline this plan on their blog page.
The bigger ramification is going to come in terms of trust for the blockchain. A breach like this in combination with the one just a week before is likely going to scare potential investors away from the Polygon blockchain and drive them towards more secure options. In fact, as these breaches keep happening across multiple blockchain platforms, investors may start to shy away from cryptocurrency altogether.
Impact on blockchains for businesses
Stablecoins, as long as they’re safe, work well for companies who want to offer alternative payment options for their customers, increasing accessibility and customer satisfaction. However, as we’ve seen, even commodity-backed cryptocurrency isn’t a guarantee. If your company is considering cryptocurrency as a payment method, it’s best to use established stablecoins that take their security seriously.