Onyx Shuts Ethereum Lending Market, Relaunches as Onyx Core

Onyx, a blockchain-based platform, has shut down its Ethereum-based lending market after losing $3.8 million in a hack that exploited a known but unaddressed security vulnerability on September 27 2024.

Overview

On the same day as the $3.8 million security exploit, Onyx introduced the Onyx Improvement Proposal “OIP-46: Relaunch Onyx Core.” The proposal outlined significant changes to the platform’s protocol and product offerings. While surprising to some, this move reflects the evolving landscape of decentralised finance (DeFi) and highlights the firm’s commitment to adapting to market demands. The shutdown will pave the way for introducing a new offering: Onyx Core. 

The relaunch under this new banner aims to optimise services, enhance scalability, and provide more sustainable solutions for users. Ether’s lending protocols have been central to Onyx’s offering in the past. Still, rising gas fees, scalability concerns, and competition within the DeFi space have pressured the platform to seek alternatives. As the DeFi ecosystem matures, Onyx has embraced new blockchain technologies that promise greater efficiency, lower costs, and improved security features. By September 29, the OIP-46 proposal had gained unanimous support from the Onyx community, with no opposition to the suggested changes. The proposal is scheduled to be implemented on October 1 2024. 

Challenges in the Ethereum Ecosystem

The ETH-based lending market offered by Onyx has been a cornerstone of the platform’s success in the DeFi space. Utilising Ether’s innovative contract capabilities allowed Onyx to build a lending and borrowing ecosystem where users could access liquidity without intermediaries. However, Ether’s limitations became more evident as the network expanded. The primary challenge was the increasing transaction costs, driven by Ether’s congestion issues. As the number of decentralised applications (dApps) on ETH grew, network fees, known as gas fees, skyrocketed. These high fees eroded the cost-effectiveness of Onyx’s lending market, making small transactions impractical for users.

In some cases, the costs could exceed the value of the loans themselves, diminishing the appeal of decentralised lending altogether. Moreover, scalability concerns have long plagued ETH. The network’s throughput remains constrained by its Proof of Work (PoW) consensus mechanism, which limits the number of transactions processed per second. Despite Ether’s transition to Ether 2.0 and the switch to a Proof of Stake (PoS) system, Onyx found that the scaling solutions weren’t sufficient for their ambitions in the near term. These factors prompted Onyx to explore alternative blockchain technologies for its relaunch. Similar vulnerabilities were exploited in other attacks, such as the Hundred Finance hack in April 2023. The proposed restructuring seeks to strengthen the Onyx Protocol against future threats and security breaches.

Onyx Core: A New Beginning

The introduction of Onyx Core marks a significant transformation for the platform, moving away from Ether’s ecosystem to a more adaptable infrastructure. The company has hinted that the new version will be built on a blockchain optimised for speed and scalability, possibly Layer 2 solutions or alternative blockchain protocols like Avalanche, Solana, or Polkadot. Onyx Core aims to address the pain points experienced in its previous iteration by lowering transaction costs and improving user experience. 

With a more scalable architecture, the platform intends to offer faster transaction speeds, thus enhancing overall efficiency. This new structure also promises to maintain the same level of decentralisation and security that users expect from Onyx without Ether’s existing infrastructure constraints. Moreover, Onyx Core is expected to introduce advanced lending products and features designed for institutional investors, a segment the platform has increasingly targeted. With this new direction, Onyx is positioning itself as not just a DeFi platform but a comprehensive solution for decentralised finance across a broader spectrum of users.

What’s Next for Onyx and the DeFi Landscape?

The decision to shutter the ETH-based lending market and transition to Onyx Core reflects broader trends in the DeFi sector. Many platforms that initially chose ETH are now seeking alternatives as they confront similar challenges around fees and scalability. The rise of new Layer 1 and Layer 2 blockchain solutions, offering faster and cheaper options, is reshaping the competitive landscape of DeFi. For Onyx, the focus is now on the successful rollout of Onyx Core, which is expected to provide a seamless migration for existing users. The platform’s pivot may also pave the way for new product offerings and services, potentially expanding beyond lending into other areas such as yield farming, staking, and decentralised derivatives.

As the DeFi space grows, adaptability will be key for platforms like Onyx to stay ahead of the curve. The launch of Onyx Core is a response to Ether’s limitations and acknowledging the platform’s vision for the future. Onyx hopes to attract retail and institutional participants looking for a robust and reliable DeFi experience by offering a more scalable and cost-effective solution. The shift from ETH to Onyx Core is a significant step forward for Onyx and could set the tone for other platforms in the DeFi space. The focus on scalability, lower costs, and new product offerings positions Onyx as a leader in the next generation of decentralised finance, and its success could provide a blueprint for other projects navigating the rapidly evolving blockchain ecosystem.

The shutdown of Onyx’s Ethereum-based lending market and the introduction of Onyx Core underscore the dynamic nature of the DeFi space. Onyx’s pivot reflects its determination to adapt to changing market conditions and user needs. As DeFi continues to evolve, Onyx’s bold move toward a new infrastructure could catalyse further innovation within the sector.