In the cryptocurrency space, DeFi (Decentralized Finance) has long been considered an innovative model, providing lending and trading services through smart contracts without the need for traditional banks. Balancer, a key liquidity protocol in DeFi, helps users manage assets and earn yields through its flexible pool design. However, in the early morning of November 3, 2025, this protocol suffered a serious vulnerability attack. Attackers withdrew approximately $128 million from the Composable Stable Pools of Balancer V2. This incident damaged market confidence, causing prices of many DeFi projects to fall, especially high-risk assets. This is not just a problem for Balancer, but a wake-up call for the entire DeFi ecosystem: while technological innovation is rapid, security issues remain a constant threat.

The incident occurred early Sunday morning, around 2:00 AM Beijing time. At that time, most global traders were resting. The attackers used flash loans to manipulate the weighting of trading pools. Initially, trading appeared normal, but funds soon began to flow abnormally. One pool lost approximately $70 million, including assets such as ETH and USDC. On-chain data shows that the total loss reached $128 million.

Oversights in contract design

Balancer V2's Composable Stable Pools are an advanced design. They allow users to combine different liquidity strategies, with weights dynamically adjusted to optimize returns and reduce slippage. This flexibility is a core strength of Balancer, but it also introduces complexity. This attack exploited a critical flaw in the contract: an integer overflow issue during weight calculation. When the attacker injected a large amount of fake liquidity via flash loans, the pool's asset allocation was distorted. The previously balanced 50% ETH and 50% USDC ratio instantly became extremely unequal. The attacker then extracted real assets, used them to repay the loans, and completed the arbitrage.

Several months ago, a security firm, Webacy, noticed this potential issue during an audit. They pointed out that mathematical formulas could malfunction under extreme conditions. However, this warning was not addressed in time. At the time, the Balancer team was focused on developing new features to counter pressure from competitors like Uniswap V4. The development pace in the DeFi industry is rapid, and code reviews are sometimes delayed. This is not an isolated case; several similar incidents have occurred in the DeFi space this year, resulting in total losses exceeding $2.17 billion. For example, the $600 million attack on the Ronin bridge and the Poly Network vulnerability both stemmed from similar design flaws. Ethereum founder Vitalik Buterin later commented that this complexity is a double-edged sword for DeFi; simpler designs are often more secure.

The attackers were highly skilled. They likely have DeFi development experience and utilized boundary conditions in the Solidity language to carry out this operation. Fund tracking shows that some assets flowed into mixing tools, further concealing their activities. This incident serves as a reminder that smart contract security audits require more rigorous processes, including boundary testing and formal verification.

Team's response

The Balancer team's response was commendable. Within just 15 minutes of the incident breaking, they activated their emergency mechanism, freezing all affected V2 pools. This was a pre-prepared contingency measure that had been tested in previous audits. Founder Fernando Martinelli addressed users via livestream and official announcement, stating, "This was an internal error, and we will take full responsibility."

Next, the team collaborated with auditing firms such as PeckShield and Certik to conduct an in-depth investigation. The results showed that the vulnerability stemmed from improper handling of boundary conditions under high-frequency weight adjustments, leading to misallocation of assets. They promised to release a detailed report within 48 hours and launch version V2.1, adding multi-signature and stronger verification tools. The compensation plan is a key focus: 90% of the losses will be covered by vault funds, with the remainder decided through DAO voting, prioritizing smaller users. Simultaneously, they plan to burn a portion of their governance tokens, BAL, to stabilize market prices.

Community reactions were polarized. Some praised the team's transparency and efficiency, while others questioned why early warnings were ignored. One anonymous developer mentioned that the development pressure was too great, leading to insufficient edge case testing. Nevertheless, the compensation portal went live on November 4th, and users began claiming their funds. One user shared that the team not only refunded her losses but also provided additional tokens as compensation, which made her reconsider continuing to participate in DeFi.

Lessons from DeFi

The Balancer incident serves as a mirror, reflecting the deep-seated problems of DeFi: decentralization means the absence of a central authority, but it also means that responsibility lies entirely with the code and the community. Innovation is rapid, but security lags behind. Multiple vulnerability incidents this year demonstrate that the industry needs to change its mindset. Following the Ronin incident, efforts should have been made to strengthen bridging security, yet similar problems continue to recur.

Experts recommend a "security-first" approach. This includes using formal verification tools to examine contract logic or introducing AI-assisted auditing. Layer 2 networks like Optimism are accelerating the establishment of security funds, and Uniswap has increased its audit budget. The developer community has launched several open-source initiatives to share security best practices. Vitalik's article emphasizes that complexity is not the problem; ignoring risk is.

In the long run, this incident may accelerate the maturation of DeFi. It will attract more professional auditing from traditional finance and make users more risk-averse. DeFi is not a risk-free paradise, but rather a field that requires cautious participation.