Decentralized exchange Velocore was hacked for $7M over the weekend.
Ethereum Layer 2 network Linea, developed by Consensys, said it stopped block production due to a security breach at Velocore, a decentralized exchange (DEX) on its network.
On June 1, a hacker managed to exploit Velocore and steal $7 million of assets before moving 700 ETH (approximately $2.7 million) off the network using a third-party bridge. To prevent the attacker from bridging more assets, Linea halted the sequencer, its system for processing transactions.
According to Linea, its attempts to contact the Velocore team were unsuccessful, prompting the decision to pause block production.
“The sequencer was paused from block 5081800 and 5081801. During this pause, we gave the Velocore team time to support their efforts of triaging the vulnerability,” explained Linea. “We also censored the hacker’s addresses. This significantly reduced the ecosystem impact on Linea users.”
The drastic measure was taken because the hacker had begun to sell large amounts of stolen tokens for ETH, which could have caused additional fallout across the ecosystem. Linea said that halting the sequencer was necessary to protect the network’s users.
Aftermath of the exploit
Velocore said it is working with external networks to reimburse impacted victims. Data from DefiLlama shows the total value locked (TVL) in Velocore crashed on Sunday from $9.2 million to less than $1 million following the hack.
The hack also significantly impacted Linea’s network activity. According to data from Dappradar, transactions on Linea dropped by 23% to 261,000 on June 2.
Meanwhile, Linea’s active address count decreased by 14% from 479,000 to 409,000 in just 24 hours, data from Growthepie shows.
Community Criticism
However, critics argue that Linea’s actions violate the principles of decentralization, a cornerstone of the cryptocurrency industry.
Mert Mumtaz, CEO of Helius Labs, criticized the move.
“Consensys’ L2 unilaterally turned off the chain yesterday,” he said. “While it may have been reasonable given the circumstances, it clearly shows that this is not crypto.”
“There’s a place for centralized crypto to reduce costs between known parties, like in supply chain blockchain,” said Matthew Gould, founder of Unstoppable Domains. “However, I don’t think Linea is trying to be that.”
Echoing these concerns, Alex Gluchowski, CEO of Matter Labs, stressed the necessity of decentralization in Layer 2 solutions. “Decentralizing the sequencer isn’t optional. Every serious L2 stack must prioritize this,” he asserted.
In response to the backlash, Linea said it’s moving towards a decentralized network to prevent similar incidents in the future.
“When our network matures to a decentralized, censorship-resistant environment, Linea’s team will no longer have the ability to halt block production and censor addresses,” the project said.
