It’s the stuff of nightmares for every cryptocurrency enthusiastic – you make an error whilst typing an address or entering the details of a smart contract, and accidentally lose your funds forever. Now imagine that you are in charge of millions of dollars of other peoples’ cryptocurrency – I suspect that most of us would check, double-check, and check again before making any change to the location or structure of those funds.
It seems that at least one person did not follow such a plan this week, when decentralized finance company OptiFi were forced to announce that they had lost control of more than $650,000 of the USDC “stable coin” digital asset. The company blamed a “misunderstood command” for the error, which has caused the money to be tied up in a smart contract which will never mature, effectively locking up the funds forever.
The Ups and Downs of Cryptocurrency
It has been a tough year for crypto market; all assets including Bitcoin, Ethereum, and other altcoins have all lost significant shares of their 2021 values. It’s a dramatic about-face for the fledgling asset class, which has struggled to find a stability despite the digital tokens now being used for many real-world transactions including retail purchases, online gaming at the best slots sites, and speculative trading.
OptiFi is part of a “second-generation” of cryptocurrency solutions that aim to provide a means of decentralizing more complex financial transactions than the simple transfer of value which Bitcoin enables through its blockchain technology. These new cryptocurrencies effectively allow computer code to be written on the blockchain as well as transaction information, providing a means for peer-to-peer lending, insurance, betting, or crowdfunding.
Bitcoin and subsequently created cryptocurrencies have been locked in a seemingly never-ending cycle ever since they first launched, where huge rallies are quickly followed by a bear market that causes a similarly large drop in value. Despite these issues, each new high has been significantly larger than the last, and the falls have never managed to wipe out the entirety of previous gains. If the same trend occurs again, we could see cryptocurrency recover – and reach a new all-time high – at some point during the next two years.
How it Happened
OptiFi specializes in the Solana digital currency. On August 29th, the company installed an update to their Solana systems, before which the wrong command was issued to the running software meaning that any positions that were not closed prior to the shutdown were left in a permanently inaccessible state. The company has apologized for the error and has promised to refund all affected users manually, however this could take some time as claims by individual users will need to be manually examined and compared against log data in order to determine if the claim is legitimate.
It sounds almost too simple – how can a piece of financial software be designed in such a way that this type of error can occur? It seems like a huge oversight on the part of the developers, and our investigations into the technical details of the error failed to turn up anything which convinced us otherwise. Apparently, each session of the software has a specific identifier that is encrypted into all open positions, and if the session is closed without first closing those positions, the identifier is lost, permanently freezing the funds in place.
The team behind the Solana cryptocurrency has not given an official statement regarding the situation, however an even deeper dive into the accident suggests that OptiFi may not be telling the whole truth – the software does have fail safes in place to prevent exactly this type of scenario occurring, so perhaps the story being given is more about sparing their engineers blushes than anything else.