Moonwell Reduces Borrow Caps to 1 Wei Following $10 Million Exploit

Moonwell, a decentralized lending protocol on Base, has implemented an emergency measure by reducing the borrow cap in its MAMO Core Market to 1 wei, effectively freezing borrowing activities. This decision follows a price manipulation exploit that allowed an attacker to siphon off approximately $10 million in assets by leveraging artificially inflated collateral.

The exploit involved the MAMO token, which serves as both a utility and governance token for an AI-driven yield optimization tool integrated with Moonwell. The attacker inflated MAMO's market price, deposited the tokens as collateral, and borrowed high-value assets, including over $4 million worth of cbBTC, Coinbase's wrapped Bitcoin product on Base. In response, Moonwell also tightened supply caps for both MAMO and its governance token, WELL, to prevent further issues.

Prior to the exploit, the MAMO market had a borrow cap of 3 million tokens and a supply cap of 20 million tokens, with a collateral factor set at 50%. The new cap of 1 wei effectively reduces borrowing capacity to zero. Moonwell is currently conducting a thorough review of the exploit's impact, which will inform future decisions regarding the reopening of the MAMO market and necessary safeguards.

This incident underscores the ongoing vulnerability of decentralized finance (DeFi) lending protocols to oracle risk, where price feeds that determine collateral value can be manipulated. While large-cap tokens are generally resistant to such manipulation, lower-volume tokens like MAMO remain susceptible, posing significant risks to users and the integrity of the lending protocol.

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Source: KLEA News