Prisma Finance, a decentralized finance (DeFi) protocol, is grappling with the aftermath of a recent security breach that resulted in a hefty loss of $11.6 million. However, the team is not throwing in the towel. Instead, they've outlined a comprehensive strategy to recover from the exploit and safeguard the remaining vulnerable funds.

According to a forum post by core contributor "Frank," a critical analysis of the breach revealed that approximately $540,000 remains at risk. These funds are associated with "Troves," a core element within Prisma Finance, and reside within contracts harboring the exploited vulnerability. Recognizing the urgency, Frank detailed the protocol's immediate response and the upcoming steps envisaged for a complete recovery.

A Two-Pronged Approach to Recovery

The proposed recovery strategy hinges on two key pillars:

1. Streamlining Protocol Liquidity: One crucial measure involves a significant reduction in "protocol owned liquidity" (POL). This translates to slashing the weekly POL allocation from $40,000 to zero. This temporary decrease in liquidity aims to conserve resources and prioritize recovery efforts.

2. Adjusting Stakeholder Distribution: The second prong targets the distribution allocated to stakeholders, specifically vePRISMA holders. These individuals hold a vested interest in the protocol's governance token. In an effort to bolster resource allocation towards recovery, the proposal recommends halving the weekly distribution to vePRISMA holders, bringing it down from $160,000 to $80,000.

Frank emphasized that these modifications are not intended to be permanent. They are crucial temporary measures designed to prioritize recovery during this critical juncture. He assured the community that the team will "revisit these parameter changes 1 week after passage" as more information about the exploit comes to light.

Exploit Explained: A Flaw in the Migration Mechanism

The security breach stemmed from a flaw within the "migration zap contract." This contract is designed to facilitate smooth transitions between different trove managers, a functionality vital in the Prisma Finance ecosystem. However, hackers were able to exploit a vulnerability within this contract, leveraging it to siphon off assets, including wrapped staked Ethereum (wstETH).

The swift conversion of these stolen assets to regular Ethereum (ETH) further complicated efforts to track and potentially recover the funds.

Core Functionality Remains Intact, Emergency Measures Implemented

While the exploit undoubtedly caused financial losses, the post reassuringly highlighted that Prisma Finance's core functionality remains unscathed. The issue was isolated to the migration zap contract, and the overall protocol architecture was not compromised.

In the immediate aftermath of the breach, Prisma Finance enacted an emergency pause on all trove managers. This precautionary measure halted all borrowing activities and prevented any new liquidity from entering the system. This decisive action served to stabilize the situation and prevent further exploitation while the team focused on implementing a recovery plan.

Prisma Finance's proactive response offers a glimmer of hope in the face of a significant setback. The outlined recovery strategy demonstrates the team's commitment to user safety and the long-term sustainability of the protocol. As they move forward, the continued vigilance of the Prisma Finance team and the DeFi community at large will be crucial in preventing similar exploits from occurring in the future.