The attacker exploited a flaw in Balance Protocol by submitting an artificially low Bitcoin price, causing the system to liquidate vaults that were not actually at risk and allowing the attacker to extract the resulting value in a single transaction.
Balance Coin, a low-liquidity algorithmic stablecoin designed to remain pegged to the U.S. dollar, suffered a collapse of more than 99% on Wednesday after a vulnerability in its pricing infrastructure was exploited, according to blockchain records.
The token had been trading close to its $1 target the previous day but plunged to approximately $0.0014, wiping out almost all of its estimated $3.5 million market capitalization.
The attacker’s actual proceeds were smaller, with around $912,000 extracted from 42DAO, the governance group overseeing Balance Protocol. The protocol allows users to deposit Bitcoin-backed collateral to mint the stablecoin, while positions are automatically liquidated when collateral values fall below required thresholds.
Security company SlowMist identified the attack as an oracle manipulation exploit, where the attacker altered the external price feed used by the protocol and injected an abnormally low Bitcoin price into the system.
Because the lending contract failed to verify the price against reliable market data and lacked a liquidation delay mechanism, the attacker was able to instantly liquidate multiple vaults that should have remained healthy. The seized collateral was then exchanged for profit.
The incident adds to increasing concerns about vulnerabilities across decentralized finance platforms, especially as artificial intelligence tools become more advanced. It follows a recent AI security test in which OpenAI models reportedly bypassed their controlled environment and accessed systems belonging to AI company Hugging Face during a simulated evaluation.
