DeFi default: Kinto shutdown prompts first haircut for Wildcat lenders

Less than two months after being hacked, decentralized finance (DeFi) platform Kinto has announced its decision to shut down “to protect users and community.”

Kinto’s post-hack recovery plan, dubbed “Phoenix,” included raising $750,000 in crypto from private credit protocol Wildcat Finance, promising depositors 50% APR.

The bridge loan turned out to be insufficient, however. Kinto explained that “the 577 ETH that were drained and new debt + market conditions killed further fundraising.”

Lenders who deposited to the Phoenix market will take a 24% haircut, the first default for Wildcat creditors who have facilitated $368 million in loans since its public launch in February.

Read more: https://protos.com/just-another-day-in-defi-a-hack-a-rug-pull-and-10m-saved/

Kinto’s token, K, fell victim to an “industry-wide” vulnerability dubbed CPIMP on July 10, in which an attacker upgraded the token contract’s implementation to allow themselves to mint tokens.

The subsequent sell-off of freshly minted tokens crashed the price of K and netted the attacker 577 ether (ETH), worth $2.5 million today per CoinMarketCap data.

The foundation’s exchange liquidity will be used to repay Phoenix lenders, who will “recover ~76% of principal.”

Additionally, Kinto founder Ramon Recuero is offering hack victims up to $1,100 from his own personal funds.

Collateral damage

Wildcat, which announced its latest $3.5 million raise on Friday, is an attempt to bring unsecured credit to a sector which can feel a lot like the wild-west of global finance.

It aims to replace “the opaque credit daisychain of FTX, 3AC et al,” which imploded spectacularly in 2022, plunging crypto assets into a punishing bear market.

In an industry plagued by hacks and scams, and where anonymous addresses take the place of regulated intermediaries, DeFi borrowing usually has to be over-collateralized, for obvious reasons.

Read more: https://protos.com/uniswap-hook-bunni-hacked-for-over-8m-after-precision-bug-exploited/

Previous attempts at under-collateralized lending have been tried, but with little success so far. In one well known example, liquidity providers for Goldfinch Finance faced a $5 million default for lenders when a Kenyan motorcycle-taxi financing company failed to repay its loan in October 2023.

Wildcat is keen to point out that its job is not to vet borrowers, but verify identities and host loan agreements transparently on-chain.

Co-founder Laurence Day summed up Wildcat’s involvement on X as “an entity being added to the archcontroller simply means that they are the entity that they say they are.”

Indeed, Wildcat’s initial announcement of the Phoenix credit line carried a hefty disclaimer, urging would-be depositors to “perform [their] own due diligence.”

According to on-chain data from the Etherscan block explorer, there are just 13 creditor addresses holding the Kinto Phoenix market deposit token.

Of these, the largest holder has over 60% of supply and the second, approximately 25%.

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