Web3 Security Firm Warns: Stablecoin Banks Like Erebor Risk Becoming DeFi’s Next Achilles’ Heel

Stablecoin banks—touted as the future of finance—might just be recycling DeFi’s old problems. According to a new report, platforms like Erebor could inherit the same vulnerabilities that have plagued decentralized finance, from smart contract exploits to liquidity crises.

Security experts sound the alarm. The same weak links that hackers love in DeFi—poorly audited code, overcollateralization risks, and governance loopholes—are now creeping into centralized stablecoin issuers. ‘Erebor won’t have dragons, but it might have gaping backdoors,’ quips one analyst.

Bonus jab: Because nothing says ‘innovation’ like reinventing the same risks with a fresh coat of VC paint.

Banks will have to learn DeFi security

Most banks rely on regulated and closed systems, including SWIFT and Fedwire, for transfers. On the other hand, DeFi protocols are controlled by third parties, relying on smart contracts that could have vulnerabilities.

“You also develop a very particular focus on crypto authentication and crypto security, especially in the context of treasury management. Not all banks will succeed in this endeavor. Consider that most exchanges are effectively stablecoin-based banks today, with one loose bridge out into the fiat world. That’s basically what is being proposed here as well,” Mitchell Amador, Immunefi.

In recent years, crypto firms have had issues getting access to banking services, which saw the business as too risky. One bank, SVB, which regularly served crypto clients, collapsed in 2023, due to its reliance on U.S. Treasury yields.