The Mirror Protocol is an innovative new protocol designed to increase liquidity and market capitalization in decentralised finance. Unfortunately, while the benefits of this protocol are appealing, it exposes investors to considerable risk as well. This article will provide an overview of why the Mirror Protocol is vulnerable, and what measures investors can take to ensure they do not suffer any losses while participating in it.
The primary vulnerability associated with Mirror Protocol is its reliance on stablecoins and their respective custodians. Stablecoins are digital tokens meant to maintain a stable value on decentralised exchanges, so returns from trading these tokens should remain consistent over time. However, mirror Protocol relies on the use of multiple stablecoins that come from a variety of custodians for each proposed trade. As a result, when the price value or availability of one or more of these tokens changes, it can lead to volatility in the gains which enter the system. This makes Mirror Protocol an attractive target for malicious actors looking to manipulate prices and cause losses for traders who rely on it.
Mirror Protocol also relies heavily on smart contracts which third-parties have programmed; as such, there is always a chance for errors or bugs that could lead to major losses if not addressed quickly. In addition, smart contracts execute trades automatically based on predetermined instructions; if any part of those instructions fails or creates unexpected results, then funds may be lost, stolen or otherwise manipulated without a trader’s knowledge or consent. As such, investors should ensure their investments are secure and their smart contracts function properly before engaging in trades through this platform.
Finally, there is also potential for yield farming within the Mirror Protocol – allowing traders to stake their tokens to receive additional rewards when certain conditions are met within the system – adding another layer of complexity and risk into trading activity through this platform. Yield farming can lead users into complicated agreements with unknown actors and force them into complex strategies with no guarantee of success; thus trading risks must be carefully considered before entering into this type of activity with any digital asset platform.
What is Mirror Protocol?
Mirror Protocol is an algorithmic stablecoin protocol that enables traders to speculate and borrow on Ethereum. In addition, this open-source protocol enables users to earn yield on Ethereum and ERC-20 tokens.
Recently, a vulnerability was discovered in Mirror Protocol that allowed attackers to drain its native token MIR in a few hours.
Let’s take a look at what Mirror Protocol is and its features.
Overview
Mirror Protocol is a decentralised liquidity network built to power algorithmic asset classes, starting with digital gold. Mirror Protocol’s protocol architecture utilises incentives and technology to create an incentive aligned and highly efficient market where users are financially rewarded (through fees or staking rewards) for providing liquidity to the market.
By providing controlled volatilities and enabling new types of collaborative strategies, the protocol allows users to easily access their digital assets. It also offers a permissionless platform that enables developers and other open finance applications to deploy decentralised exchanges (DEXs), automated market makers (AMMs), synthetic asset trackers, conditional token pools, and various derivatives products within the Mirror DAO.
The core components of the protocol include:
- Its controller contract.
- A decentralised autonomous organisation (DAO) for funds management.
- An oracle system for price transmission exchange rate arbitration.
- Smart contracts that govern asset deposit/withdrawal operations and fee structure configurations.
Mirror Protocol’s use of incentives-based mechanics that encourage user contributions makes it an attractive choice for many DeFi applications.
How it works
Mirror Protocol is an open-source, Ethereum-based decentralised finance (DeFi) protocol for digital asset trading. It enables users to trade digital assets such as BTC, ETH and altcoins in a trustless, non-custodial environment.
The Mirror Protocol creates two tokens; Mirror Tokens (MIR) and Wrapped Assets (WRAX). A user deposits their asset into the protocol and receives equal WRAX in return. The WRAX can then leverage up to 16 times extra buying power – allowing users to potentially increase their gains. Mirror Tokens provide collateral security for the open positions while serving as the medium of exchange and governance token within the protocol.
The Mirror Protocol also provides staking rewards for those holding MIR tokens or providing liquidity on various markets. For example, when locked in a designated pool, MIR tokens will attract numerous liquidity mining rewards from trading fees that often come with a variable APY (Annual Percentage Yield).
Despite its potential rewards, Mirror Protocol does have some drawbacks that should be noted when considering participation. First, it’s still in an early stage of development with no guarantees on long-term performance or safety from malicious attacks or hacks. As always with DeFi products, there is always an element of risk involved due to their very nature and all users must understand this before getting involved in such protocols.
Mirror Protocol suffers new exploit and could be drained in hours
On March 10th, 2021, it was reported Mirror Protocol (MIR) suffered a new exploit that could potentially lead to more than $50 million of tokens being drained from the project’s wallets within a few hours. Naturally, this raised a lot of alarms in the crypto community and many investors were concerned about their funds.
This article will explore the vulnerability of the Mirror Protocol and what could have been done to prevent this issue.
Mirror Protocol suffers new exploit and could be drained in hours
On April 18, 2021, it was reported that a security exploit had been discovered in Mirror Protocol. This exploit was a vulnerability in the platform’s smart contracts and tokenomics which malicious actors could exploit to gain large sums of tokens.
The vulnerability stemmed from Uniswap V2 and Curve Finance pools lacking an expiration date on the token holdings. Since many users use these protocols to collateralize their stakes, malicious actors could continuously deposit small values and then exchange them for tokens at much higher prices. They could then extract profits without having any stake left in the pool.
In response, Mirror Protocol took immediate steps to fix this vulnerability by adding an expiration date on all its contracts, limiting how long users can collateralize their tokens in proportion with corresponding external assets that they stake or loan into protocols such as Uniswap V2 or Curve Finance pools. This expiration date would slowly reduce the value of their stakes while still allowing users enough time to close out or liquidate their positions if needed.
Mirror Protocol also implemented a few updates on additional contracts such as its stablecoin (MIR/USD) staking rewards contract and its margin trading rewards contract which further limited malicious actors’ ability to exploit these protocols for illicit gains. The team behind Mirror Protocol also launched an initiative inviting outside developers and auditors to examine each contract for any vulnerabilities the project might have missed during security audits.
How the exploit works
Mirror protocol is a decentralised finance (DeFi) protocol comprising an Ethereum-based derivatives market. It allows users to trade the price of multiple assets, possibly with leverage, and its backing team has raised more than $20 million in capital. However, on April 30th 2021, a group of independent researchers disclosed a severe vulnerability of the Mirror Protocol.
This exploit works by leveraging how Mirror handles liquidity on its exchange pool. To use Mirror, users deposit two digital assets into a pool which are then allocated as collateral. This collateral is used to back up DeFi trading products that users can buy at a fixed price from the exchange. The attacker can exploit this system by taking out excessive amounts of money from the pool without depositing any new collateral assets until it eventually becomes exhausted and unable to support further trading operations.
In addition, since trades cannot be completed without having enough liquidity in the pool to back them up, traders could potentially see their invested funds locked up for an indefinite period if they attempt to exit these positions while the attack is taking place. Finally, the hack also affects markets outside Mirror’s ecosystem as leveraged traders may have been forced to liquidate their positions in other exchanges when prices fell due to this exploit causing widespread market instability.
Potential consequences
In the event of a Mirror Protocol exploit, system users can be exposed to potential financial losses if multiple DeFi platforms utilising Mirror Protocol assets somehow become unavailable due to an attack. This can occur due to a malicious actor taking control of different nodes or servers through a distributed denial-of-service (DDoS) attack, or purposely launching malware infections.
The consequence for individual users associated with these scenarios will depend on how much capital has been involved in various DeFi products and services within the Mirror Protocol environment. Losses could range anywhere from minor inconveniences such as time delays in processing transactions, to more serious financial repercussions involving theft or manipulation of digital assets.
Moreover, bad actors might also leverage vulnerabilities in the underlying code of smart contracts associated with DeFi products and services commonly used within the Mirror Protocol ecosystem. This could result in unplanned upgrades, protocol changes, and interruptions caused by sudden system disconnects. In this scenario, user funds remain safe; however, their ability to interact with the platform could be limited until any technical issues are resolved.
Security Measures
After Mirror Protocol suffered from a new exploit, security measures are at the top of the agenda for DeFi users. This exploit could have led to a situation where the entire system could be drained in hours. To ensure this does not happen again, let’s look at some security measures that can be taken to protect Mirror Protocol from similar attacks.
What Mirror Protocol is doing to address the exploit
To address the exploit, Mirror Protocol has taken several steps to reduce the risk of further attacks. First, the platform has implemented a third-party monitoring service that detects malicious activity and instantly shuts it down before it can exploit the vulnerability. This will ensure that no sensitive data is exposed or funds are stolen.
Furthermore, Mirror Protocol is implementing a reward system for security researchers who find potential exploits in their system. This will encourage users to report vulnerabilities as soon as possible so that they can be addressed quickly and efficiently. Additionally, Mirror Protocol is also taking additional measures such as increasing its use of best practice security measures such as multi-factor authentication for login access, encryption for all data stored within their system, and regular security audits.
Finally, Mirror Protocol continuously educates its staff on identifying and flagging any suspicious activities to promptly act upon any detected threats. Through these various measures, they believe they can better protect their users against any potential exploits or cyber attacks in the future.
What users can do to protect their funds
To keep your funds secure, you must understand the risks the Mirror Protocol poses and take appropriate measures to protect yourself. Here are a few steps users can take to secure their funds and stay safe while using the Mirror Protocol:
1. Use strong passwords: Choose unique and complex passwords across all components of your Mirror Protocol account. You should also change them regularly to prevent anyone else from accessing your wallets or other accounts.
2. Store private keys securely: Depending on how you interact with the blockchain, certain protocols might require that you store private keys locally on either your desktop or mobile device — use a dedicated hard drive or a smart USB device for this purpose instead of cloud storage and ensure these devices are password protected at all times! Additionally, it is strongly recommended that you write down paper copies of seed phrases which can help protect against loss or theft.
3. Enable two-factor authentication (2FA): 2FA is an additional layer of security beyond just passwords and adds an extra layer of protection for accounts related to your Mirror Protocol wallet address. It should be enabled across all devices associated with the wallet address to further secure sensitive data like your private key(s).
4. Use only official applications: When downloading mobile applications associated with the Mirror Protocol, verify their authenticity before installing them via digital marketplaces like Apple’s AppStore or Google’s Play Store — this will help minimise potential attack surfaces associated with unverified apps! Additionally, users should closely inspect web links sent via email or other sources before clicking as they may contain malicious code which could potentially access sensitive information stored within wallets (e.g., passwords).
5. Monitor transaction history often & review wallet details regularly: To ensure that unauthorised transactions do not occur under one’s account, users should frequently check their transaction logs for any suspicious activity and make sure any actions taken match those stated in recent emails/notifications received from mirror protocol services/sites! Lastly, regularly review wallet details like its public address & signature code as these could be compromised without user knowledge if proper security measures are not followed (e.g., physical location).
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