Linear Finance’ Stablecoin LUSD Crashes to $0 After Suspected “Exploit Attack”

The integrity of the stablecoin family has once again come into the limelight. This time, LUSD (ℓUSD), a dollar-pegged stablecoin issued by the blockchain platform Linear Finance, has drastically crashed to $0, losing its supposed parity to the U.S. dollar.

LUSD Crashes to Zer0

The stablecoin’s price drop followed an announcement from Linear Finance on X (formerly Twitter). The project’s team revealed that the protocol was “under an exploit attack.” The crew urged users to refrain from buying or trading the LUSD stablecoin. The announcement adds that users’ accounts were not at risk.

????️Urgent Update Re $LUSD ????

The Linear stable coin $LUSD appears to be under an exploit attack. While the team investigates, DO NOT BUY LUSD, DO NOT TRADE $LUSD

Liquidations are paused and users accounts are not at risk.

Further updates will follow.

— Linear Finance (@LinearFinance) September 21, 2023

After hours of investigation, the team revealed in a blog post the way the attack was conducted and the precautionary measures that have been taken:

“The attacker was able to mint an unlimited supply of ℓAAVE and subsequently traded the liquid asset to ℓUSD on the Linear Exchange, prior to selling it on PancakeSwap and Ascendex. [. . .] All protocol contracts that allow tokens to be minted, burnt or exchanged have been paused.”

Another Stablecoin Failure?

Stablecoins are digital currencies designed to keep prices pegged to a particular asset, such as a fiat currency (dollar, euro, pound), a commodity (gold, silver), or a cryptocurrency. Examples of stablecoins include Tether USD (USDT), Circle USD (USDC), MakerDAO’s DAI, and TrueUSD (TUSD).

According to the price tracking platform CoinStats, the stablecoin lost its parity to the U.S. dollar yesterday. Zooming out on its price stability since its launch, the so-called LUSD stablecoin has not always kept its peg to the U.S. dollar.

 

As shown in the chart above, the stablecoin has traded above and below $1 for a significant time. At the time of writing, the LUSD stablecoin traded at only a few fractions of a cent.

The instability of the LUSD stablecoin makes skeptics question the stablecoin family. The issue of stablecoins’ credibility has been questioned for several months, especially after the crash of UST, an algorithmic stablecoin for the Terra blockchain.