Stars Arena — How bad is the damage to Avalanche?

The early success of Stars Arena may have given a second breathing space to the Avalanche ecosystem in this bear market, but it turned out to be a disappointment. Let’s examine whether it’s that bad:

You will know:

– Why is the Friend Tech model going viral?

– What happened to Stars Arena?

– Why the damage dealt to the Avalanche ecosystem isn’t a joke.

Friend Tech model going viral

Friend Tech is a decentralized social media platform for cryptocurrency users, that is built on Base. The essence of Friend Tech’s innovation is the use of “shares” as digital assets.

A distinctive feature of Friend Tech became the organic process of entering and exiting group chats. Users can join a particular group and gain a share in it by paying a base price. If they wish to leave the group, they can sell the shares they own. As the number of people wishing to join a group increases and the total number of shares in the group increases, the base price of each share in the group also increases. That is, joining a particular group serves not only for social interaction, but also has potential investment value.

The success of the Friend Tech model was bound to spawn clones. One of the most successful was Stars Arena. It was until it was hacked.

What happened with Stars Arena

Stars Arena was hacked on October 7, and about $2.9 million in assets were stolen. Attackers exploited the smart contract by increasing the proportion of AVAX tokens allocated to “user tickets”. Thus, a single Stars Arena “user ticket” could be sold at a much higher price. This is called a reentrancy attack.

A reentrancy attack is a type of smart contract vulnerability where an exploiter contract leverages the loophole of the victim contract to continuously withdraw from it until the victim contract goes bankrupt. It occurs when a smart contract function temporarily gives up control flow of the transaction by making an external call to a contract that is sometimes written by unknown or possibly hostile actors.

Damage dealt to Avalanche ecosystem isn’t a joke

To understand the scale of the damage caused by the Stars Arena hack to the Avalanche blockchain, we need to first learn a few facts:

1. Prior to the launch and inflow of users into Stars Arena, the price of AVAX was in a never-ending downtrend, breaking down the major support at ~$11. And after Stars Arena gained much attention, the price bounced back from the bottom and began to rise 6–7% per day, intending to regain support;
2. The number of Avalanche transactions increased about four times after the Stars Arena launch;
3. The founder of Avalanche, Emin Gün Sirer, at the peak of Stars Arena’s popularity, tweeted about how great the app is and said that all vulnerabilities have been fixed. Then the rumors about Ava Labs’ investment in Stars Arena started spreading.

Right after, the balances of Stars Arena users were zeroed out. Can you imagine the reputational losses and user exodus after all of that? Avalanche users just started gaining some hope of the ecosystem revival, and it was absolutely destroyed immediately.

The bear market doesn’t forgive things like that. The days of cheap money are long gone, while the user base is severely limited for so many blockchains and applications on them. So users and their money will go where such things just don’t happen.And tweets like this won’t help, because it’s mostly a reputational issue rather than a financial one:

Output

So, how bad is the damage to Avalanche? Clearly, vulnerabilities and hacks do occur, but it’s the totality of circumstances like the bear market, the never-ending AVAX downtrend, the ruined user hopes, and Ava Labs’ reputational losses that make this damage severe.

Avalanche ecosystem will recover from the hit, but AVAX price expectations and the timing of ecosystem revival are worth lowering for a while.