A safer DeFi environment with wrapped tokens
As we launch the Lossless Controller on the Ethereum Mainnet, list the $LSS token on some of the major exchanges, and onboard the first project to implement the Lossless anti-hack tool on its token, we’re certainly getting closer to fulfilling all of the goals from our roadmap.
This completes the first of our huge milestones — the launch of the Lossless protocol for new tokens. After this, we proceed to our next major phase — launching wrapped tokens for any other participating projects. And here’s why this is so monumental:
All the risks of participating in the DeFi market
Virtually everyone in this industry has heard of devastating hacks that have struck some of the best-known projects. Some of the worst attacks have counted losses in millions of dollars on one occasion, tallying around $3.8 billion in collective damage in 2020 alone.
There are many types of attacks, including flash loans, exchange hacks, wallet hacks, illicit token minting, intentional rug-pulls, evil smart contracts, and so on. Only some of the examples of the most devastating attacks in recent times include:
- a flash loan attack on Yearn Finance that siphoned $11 million from the Dai Vault,
- an exploit that caused DODO to lose $3.8 million,
- a flash loan incident that robbed Alpha Finance and Cream Finance of $37.5 million,
- an infinite minting hack on PAID Network that slashed the token price by 80%,
- an evil contract that damaged Furucombo by $14 million.
The DeFi market isn’t just under a constant threat of native tokens being stolen. All the assets in smart contracts are also at risk, including WBTC, ETH, USDT, and many others.
Wrapped tokens to the rescue
Despite the best efforts of the existing hack-protection tools, they still leave plenty of room for attacks to happen. This is because they aren’t capable of freezing and actually reversing the hacks when they do happen, at least not without sacrificing the core principles of the DeFi.
Currently, the DeFi market can only rely on halfway solutions. These include:
- hack mitigation tools (audits and the like);
- post-hack tools (insurance and money tracking products);
- one-off bounty programs;
- compromising decentralization (although successful in corner cases, like Tether).
This is where Lossless-wrapped tokens come in as an ideal solution. Not only are they incredibly easy to implement, but their staking model is also a unique and immensely efficient way to protect major protocols’ tokens and assets against hacking.
Other benefits of wrapping your tokens in the Lossless hack-protection code include practicality and flexibility — they work on any ERC-20 tokens. In other words, all of these tokens can be wrapped in the Lossless protection code and there is no need to relaunch for a bigger project.
Wrapping their tokens in the Lossless code is also a win-win situation for token creators. There’s no upfront cost and a fixed percentage fee is taken from a saved hack only.
Finally, such a hack protection system in place would help projects increase the trust and security for token holders and play a vital role in the wider global DeFi adoption.
Wrapped tokens — behind the scenes
Lossless will equip the participating projects with a piece of hack protection code which will be embedded in their tokens. This code will wrap these tokens, creating a pegged L-token version of their existing or newly launched tokens.
For example, ETH and BTC would have the pegged L-BTC and L-ETH and these tokens would now feature the Lossless hack protection code. On Ethereum, people will be able to deposit their ETH and receive L-ETH through a smart contract — Lossless Ether.
At the same time, a community of highly skilled ethical hackers and hack-spotting bots constantly monitors the market to expose vulnerabilities and hacks through methods such as:
- listening for on-chain events (like minting of new ERC-20 tokens);
- checking for unusual token activities (e.g. major transactions from the team’s wallets and liquidity pools without previous indication, etc.);
- third-party reports (such as about exchange security leaks and blockchain hacks);
They’re the most qualified for the job as they best understand the most commonly exploited weak spots in smart contracts. Of course, they’re going to be properly compensated.
To give these white hat hackers an incentive, we’ve introduced a unique staking system that rewards them in $LSS tokens for spotting, identifying, and reporting hacks as soon as they happen. Thanks to such a system, the market will determine the best ways to identify hacks and guarantee a reward for the quickest spotter.
If the spotter discovers a potential hack involving a token wrapped with the Lossless hack protection, they can freeze the transaction for a certain period of time. They do so by staking a specific amount of their $LSS (Lossless) tokens.
Then the higher level takes over. The Lossless pre-elected decision-making body that consists of the Lossless committee, Lossless company, and the token creator reviews the frozen address and rules on the validity of the hack.
If illicit activity is confirmed, this body rules the hack as valid. The finder receives the fee and the address is frozen. The Lossless committee then makes a proposal for permanent address freezing and reversing the transaction.
In an odd case that the decision-making body rules the hack invalid, the finder’s staked $LSS tokens are slashed, while the address in question is immediately unfrozen.
Adoption of wrapped tokens
Given the plague of major attacks that have struck the DeFi market, protocols are yearning for an effective yet easily implemented solution to protect assets in their smart contracts. Wrapped tokens are the best possible answer to this widespread problem.
For instance, let’s say a large project like Aave opens the vault of L-ETH. This way, it can become a closed ecosystem of safe funds. If a hacker steals the assets, they would need to unwrap to normal ETH first, before changing tokens to another asset, moving them to mixers, and so on.
All things considered, Lossless will make any DeFi activity, be it staking, farming, and the like, completely safe and risk-free with wrapped tokens.
In the ocean of insufficient attempts at protecting DeFi assets, this is ultimately the most successful method of hack mitigation in today’s DeFi market — one that opens a world of possibilities for profit and growth to anyone involved.
If you want to learn more about the project, join our community, and contribute to realizing the true potential of this one-of-a-kind and highly prospective ecosystem, then we invite you to join us today by reaching out on our: