BXH theft incident and its impact on the Decentralized Finance ecosystem

On October 30, a decentralized finance protocol on the BSC chain suffered a private key theft, resulting in a loss of approximately $139 million in crypto assets. Although assets on other chains were not affected, the protocol closed all deposit and withdrawal functions on all chains for security reasons.

Analysis by blockchain security agencies shows that attackers transferred assets from the protocol treasury by gaining administrative privileges. As of November 1, some of the stolen funds have already been transferred and exchanged across different chains. This simple method of stealing coins has raised questions about the internal management of the protocol.

The impact of this event is far beyond expectations. Due to the closure of the withdrawal function by this protocol, the yield-generating gun pool projects have also been forced to suspend withdrawals. Currently, four gun pools have been affected, including a project that ranks second in on-chain locked assets, with a related amount as high as 150 million USD.

This event reveals some issues that exist in the current DeFi ecosystem. Many liquidity pools earn platform tokens by frequently operating among various high-yield lending protocols, and amplify gains through leverage. Although this model can generate high returns, it also significantly increases risk. Any problem in one link could lead to the collapse of the entire investment strategy.

Industry insiders call for gun pool projects to be more transparent, publicly disclosing every step of operations and the flow of funds, allowing investors to make informed choices. Some well-known projects have already set a good example in this regard, but many other projects, especially some emerging ones, still need to improve their transparency.

From a risk perspective, gun pool products can be roughly divided into three categories: low-risk single asset collateral vaults, medium-risk automated compounding strategies of liquidity tokens and platform tokens, and high-risk multi-layered circular lending strategies.

Industry experts point out that the current development direction of gun pools should shift towards more complex and specialized financial products, such as option combination strategies and synthetic asset arbitrage, which benchmark traditional financial products. These products have already been proven to be sustainable profit models in the traditional financial sector, but they also require higher technical thresholds and professional knowledge.

This incident not only exposed the vulnerabilities in the security of DeFi projects but also highlighted the shortcomings in risk management and product design across the entire ecosystem. As the industry develops, effectively controlling risks while pursuing high returns will become an important issue faced by DeFi participants.