Kinto Shuts Down Operations After $1.6 Million Exploit

Ethereum Layer 2 network Kinto has announced its closure, scheduled for September 30th. This decision follows a significant exploit in July that resulted in the loss of approximately $1.55 million worth of ETH from its lending pools. The exploit severely impacted the value of Kinto's native token.

Key Takeaways

• Kinto, an Ethereum Layer 2 network, is ceasing operations.

• A July exploit drained $1.55 million from lending pools.

• The network's founder is personally contributing to victim reimbursement.

The Exploit and Its Aftermath

On July 10th, Kinto experienced a sophisticated smart contract exploit. An attacker managed to mint a large quantity of fake Kinto tokens on the Arbitrum-based Layer 2 network. These tokens were then sold on the market, leading to the siphoning of 577 ETH from a Morpho lending vault and a Uniswap v4 liquidity pool. The value of Kinto's token plummeted by roughly 95% in the wake of the incident.

Despite the vulnerability being flagged by security researchers and other DeFi platforms being notified, Kinto was attacked shortly after the disclosure.

Rebound Efforts and Shutdown Decision

In an attempt to recover, Kinto launched an initiative called "Phoenix." This effort aimed to raise $1 million to restart trading and DeFi operations by issuing a new token and replenishing liquidity pools. However, the new debt incurred from recovery loans made it challenging for the protocol to secure further financing.

Kinto founder Ramón Recuero, who also founded Babylon Finance and was involved in Rari Protocol's victim reimbursement efforts, announced the shutdown. Recuero stated that the team has been working without pay since July. He pledged $55,000 of his personal funds to reimburse hack victims, with a cap of $1,100 per address for those left with bad debt on Morpho. Additionally, victims can opt to receive funds if any are recovered in the future.

Recuero emphasized the team's commitment to an orderly shutdown, stating, "We won’t. We’re doing this orderly and out in the open." Remaining foundation assets will be returned to the "Phoenix" lenders, who are expected to recover 76% of their principal.

Sources

• Ethereum Layer 2 Kinto shuts down in wake of $1.6 million July exploit, The Block.