Ethereum Layer 2 project Kinto closes due to a 1.6M exploit wiping funds, and must shut down by September 30, 2025.
The Ethereum Layer 2 Kinto is closing out on September 30, after an apocalyptic exploitation of $1.6 million in July.
The attacker took advantage of a smart contract vulnerability, and minted 110,000 counterfeit tokens and emptied 577 ETH from its lending vaults and liquidity pools in Kinto.
The native token of Kinto crashed by almost 95 percent as a result of this violation, destroying investor trust and market value.
The piling liabilities and the tough market situation struck the project well, necessitating the closure despite a 1 million dollar debt issue to restart the project.
$1.6 Million Hack Sparks Collapse
The hackers on July 10 took advantage of the weakness of the ERC-1967 Proxy standards, enabling the production of forged Kinto tokens on the Ethereum Layer 2 chain on Arbitrum.
These tokens were dumped in the liquidity pools, siphoning about $1.55 million.
This flaw had previously been identified by security researchers, but Kinto did not take timely action.
This was in contrast to other DeFi platforms, which fixed this vulnerability in a timely manner, resulting in a devastating exploit of Kinto.
Failed Recovery and Rising Debt Seal Fate
Following the attack, Kinto developed a recovery strategy known as Phoenix, releasing a new token and partially rejuvenating liquidity.
This was done by increasing the debt to raise one million dollars to resume trading on its modular exchange.
The debt acquired was however too high. As the market conditions became worse, and with investors reluctant. Additional fundraising proved impossible, and the team had no option but to settle operations.
Source – X
The founder of Kinto, Ramon Recuero, who was also a part of the Babylon Finance project that was closed, revealed the shutdown, saying that they had been working for no pay for months.
He promised to pay back some of the money and goodwill payments to the affected users, and gave money personally to help victims.
The shutdown highlights the weaknesses of the DeFi ecosystem, specifically towards Layer 2 applications, which employ upgradeable smart contracts.
The grand plan of Kinto, which aimed at equalizing decentralized security and centralized efficiency, collapsed because of the security violations and economic strain.
