After a smart contract exploit, locked CVX tokens flooded the market, dragging down prices.
A smart contract bug has forced a team to prematurely unlock a huge portion of its token’s circulating supply, sending markets into disarray.
In a Twitter post Friday, the Convex Finance team wrote that it had redeployed the contracts responsible for the vote-locking governance mechanism after the discovery of a bug that would have granted certain users disproportionate rewards.
“There were no instances of [the bug] being used prior to deployment of the new vlCVX contract. However, since Convex Finance contracts are immutable and non-upgradeable, a new contract had to be deployed. The new vlCVX contract has implemented a fix for this potential bug going forward,” the team wrote in a blog post.
It’s the latest example of the perilously experimental nature of decentralized finance (DeFi), a $200 billion industry where supply shocks, smart contract bugs and volatile prices are often the norm.
Convex’s vote locking mechanism is key to the project’s token economy, one that allows for users to collect “bribes” from protocols and direct liquidity deposits into another protocol, Curve Finance, but only if users lock their tokens for 16 weeks.
This mechanism plays a key part in the complex, multilayered battle to control voting power in another protocol’s token, Curve Finance’s CRV, colloquially known as the “Curve Wars.”
The vote locking mechanism also plays a key role in managing CVX’s circulating supply, with over 72% of the supply locked earlier on Friday. Frequent CVX traders often track major unlock dates, as they can lead to supply and price fluctuations.
As such, the sudden, unexpected unlock of millions of tokens has led to a significant supply shock on Friday. Prices fell as much as 20% from $19.10 to $15.22 in a matter of hours.
However, large holders have stepped in to add to their positions, and many users have opted to re-lock their tokens rather than take the opportunity to sell, even during a time of macroeconomic uncertainty due to the war in Ukraine
While volatile, prices have been rebounding throughout the afternoon, as CVX currently sits at $16.55, down 15% on the day.