Innovation is never easy and being an innovator is often a daunting task. You are constantly embattled and questioned. But innovating, changing, and growing are essential to progress in technology; indeed these acts are essential in all rewarding endeavors. Some abandon hope and give up at the first sign of adversity, we will not. We are on the edge of innovation. We created a brand new asset class, the “Deflationary Index Fund”. This new asset was created through an immutable and community driven smart contract living within a cryptocurrency index fund. Deflationary Index Funds cannot exist in traditional finance and instruments like this are the very reason why we are in the cryptocurrency space: to change the way the world operates.
The deflationary mechanism of Statera (STA) benefits the index fund that it lives in by decreasing volatility and increasing positive price pressure. The deflationary mechanism also benefits the ecosystem it works in (Balancer Pools and Uniswap) by increasing volume (trades), which increases chances for rebalances/swaps, thereby producing tighter spreads and increased access to arbitrage. Through Statera, our pool was one of the most successful; the fees and BAL tokens our pool accrued were some of the strongest in the ecosystem. Some failed to see the value we brought by increasing the ability of the system to function more efficiently (tighter spreads, less slippage, better fees for users), because sometimes it’s hard to make people see the bigger picture and some simply refuse to acknowledge it. When you move first you don’t know what the road will hold. Last week the exchange we were traded on was exploited to take advantage of all deflationary tokens on the platform. This was a heartbreaking step backward, yet we are not wavering. We are still here.
WHAT HAPPENED — GULP EXPLOIT
Our smart contract is secure. We repeat, the Statera Token is airtight. We have been third-party audited and there is no vulnerability in our token. An exploit was found in the way Balancer Pools functions. Here is how Balancer Pools was affected in the simplest terms:
- Buy massive amounts of STA (all STA in the pool or at least over 99% of it)
The pool allows this to happen without accounting for token burn (deflation) because the pool’s smart contract code doesn’t call a “gulp” command with every movement with every transaction. The gulp command verifies the balance on the blockchain with the balance in the pool.
- At this point, all or nearly all STA is gone from the pool. The attacker THEN calls the gulp command, which syncs the pool’s balances with the blockchain’s balances, it sees that over 99% of the STA has transacted so it initiates a delayed burn, and burns the final 1% of STA, any STA remaining is gone. [If the pool had been syncing with each transaction/burn/mint the exploit would not be allowed to bring the asset to 0].
- The pool now has 0 STA and around $100,000 USD each of the other 3 tokens (wBTC, LINK, SNX) and millions of wETH which was used to buy all the STA. The attacker’s code then adds 0.000000000000000001 STA (1 stwei) to the pool which the balancer then assumes to be equal in weight to the other 4 parts of the pool. This mismatch allows the hacker to mint hundreds of BPT tokens and withdraw all other tokens from the pool.
In one sentence: Hacker buys all STA in a pool (because the system doesn’t check the true supply during transactions, in order to account for burn on each transaction), then adds in 0.000000000000000001 of STA minting thousands of BPT and withdrawing all tokens/liquidity from the pool.
All of this is done instantly and is possible because gulp is delayed on the exchange. Uniswap accounts for this attack vector by having gulp called after every mint/burn/swap, which allows the “Fee of Transaction” (burn) to happen with each movement and disallows a portion of a liquidity pool to get to 0. Getting to zero was only allowed because the gulp function was not called with each movement. If a pool “syncs with the blockchain” (gulps) at each movement the market would act against a “whale” trying to buy up all tokens, the price would rise infinitely as he tried to buy more: the pool, supply, price, and demand would all be allowed to move against him while the burn would be accurately accounted for. This means that the final gulp that brought the pool to zero, because burn was not accounted for along the way, would have been impossible. In the end, the market and pool did not get accurate information on the supply, buys, and burn of the token.
Obviously, a market that slows down information, or withholds pieces of information until the end of a transaction will not function as intended. We hope this will be fixed in Balancer Pools and in all liquidity pools so that the security of the DeFi space is improved. Balancer Labs has been nothing but gracious and supportive during this situation and we have no doubt they will make their code as secure as possible, closing this exploit and all others. We have already seen another abuse of the gulp function being used to steal COMP tokens from other pools.
THE RISE OF THE PHOENIX
These recent events do not mean the end for the Statera Project, rather they are a new beginning. Statera requires a system that accurately and continuously utilizes the gulp function. One such platform, which through its rigorously tested infrastructure has proven to handle gulp, is Uniswap. Uniswap syncs with the chain (gulps) with each movement (swap/mint/burn) of Statera. If the attacker used the same vector of attack on Uniswap their only result would be sending STA’s price to an exorbitant level per token and not being able to liquidate anything (there would be no final gulp to bring the quantity to “0”).
With that in mind we will be utilizing two Uniswap pools:
- STA Pool — a pool that allows people to trade Statera and Ethereum (ETH). Adding liquidity here gives you the Delta Token which is 50/50 ETH/STA. Delta token has no deflation (Fee on Transaction “FoT”), it is a standard ERC 20 token.
- Delta Pool — a pool that allows people to buy the STA Delta token (STA/ETH) for ETH. Adding liquidity here gives you the Delta Liquidity Pool Token which is 75% ETH/25% STA. There is no plan to make this token trade-able or include it in a Balancer Pool, but holding it gives you increased fees (from Statera’s higher volume) and gives you a bigger bet on Ethereum’s success. This is an ideal coin if you want to hold mostly Ethereum along with the added benefits of decreased volatility, upward price pressure, and “dividends”.
The Delta token will be traded within a new Balancer Pool fund, Statera Phoenix. Made up of four of the best cryptocurrencies in the space and the future of DeFi. Here is the token weighting of Statera Phoenix:
STA Delta/wETH/wBTC/SNX/Link 40/30/10/10/10
Broken out this would be (STA/ETH)/wETH/wBTC/SNX/LINK (20/20)/30/10/10/10
This weighting keeps STA at 20% in the pool and places more emphasis on ETH (50%). Ethereum is one of the highest volume assets (producing more fees for holders) in the space and is the protocol that all of this is running on. We’re excited about the new token composition and weighting, because this will allow deflation to tie into our index fund. Phoenix Fund needs to buy and sell our new Delta token based on the price fluctuation of the other tokens in the fund. Delta comes from Delta Pool (Delta/ETH), which gets its Statera from Statera Pool (STA/ETH), where the deflation happens. This pooling setup executes token burn safely on Uniswap, thereby creating arbitrage, volume, and price positive supply/demand pressure.
Our pools produce positive price pressure, encouraging more trading of STA, which pushes on price more, maintaining all of the benefits of our old pool, while stopping the gulp exploit. These movements will create liquidity ripples in Uniswap, which will cause our liquidity pool to increase volume (trades and opportunities for arbitrage); further helping the system provide tighter spreads, efficient liquidity, and better fees for users (less slippage). All of these movements burn Statera and give us our Deflationary Index Fund.
We are here to revolutionize finance. We are not here to make crypto index funds. We are here to make better crypto index funds. We are here to create a new asset class: Deflationary Index Funds.
OUR PORTFOLIO OPTIONS
You can hold each of these assets in our ecosystem:
- STA — Benefit from the price action of our whole ecosystem
Uniswap Pool Tokens
- STA Delta Token — an ERC 20 standard token which is 50/50 STA/ETH, this will earn you fees, will be trade-able, and can be used to add to Phoenix Fund.
- STA Delta Liquidity Token — an ERC 20 standard token which is 25/75 STA/ETH, this will earn you fees, we have no plan to have it be tradeable (but this is all decentralized so this could happen), and cannot be used to add to Phoenix Fund.
- Phoenix Fund — a secure deflationary index fund of 40/30/10/10/10 STA Delta/wETH/wBTC/LINK/SNX
For more on our options, check out this info-graphic
We will reiterate, this situation was not a security flaw in our token. The Statera Token is safe and secure. We are a fully released and immutable smart contract. No one person controls our ecosystem, we all control our ecosystem. This is decentralized finance, decentralized, with the power given fully to the people in a fully immutable and secure way.
We are still here, and assure you that we aren’t going anywhere. Deflationary Index Funds are a way to get cryptocurrency in every portfolio, and have the ability to help make cryptocurrency investing more accessible and successful for everyone. We will continue to forge ahead, trailblazing a path in the DeFi space. Others have failed, we will not. Our aim, our focus, our vision for the future has not changed. These things remain true, and will always be true:
Provide every investor with simple and effective ways to invest in cryptocurrency. Decrease volatility and increase positive price pressure in cryptocurrency investments. Lower the barrier to entry for more advanced investment tools. Be a community focused and community driven cryptocurrency, fully decentralized by every meaning of the word.
We aspire to put “cryptocurrency in every portfolio”. We envision a world where wealth building strategies that were withheld only for affluent individuals are made accessible to everyone, giving the power over our financial systems back to the people. Statera will be a revolutionary investment tool that brings more people into cryptocurrencies and maintains their privacy, security, power, and autonomy. We strive to create an investment ecosystem based on sound monetary policy and all the power that comes with a sound asset.
We wish to express our sincere thanks to our community. You inspire us everyday.