The $128 million Balancer hack: an ethical lesson for decentralized finance (DeFi)

Introduction: when trust collapses

On November 3, 2025, the decentralized finance (DeFi) ecosystem was shaken by a major event: the Balancer protocol, considered one of the sector's most reliable pillars, fell victim to a devastating $128 million hack [1]. This incident, which saw the protocol's total value locked (TVL) plummet by 46% in just a few hours, is not merely a colossal financial loss. It raises profound ethical questions about the nature of trust, responsibility, and risk in a system that claims to be "trustless."

For Muslim investors, this event serves as a crucial reminder of the inherent dangers in DeFi and the necessity of rigorous analysis through the lens of Islamic finance principles. This article examines the Balancer hack, its technical implications, and, most importantly, the ethical lessons we must draw from it.

Anatomy of a sophisticated hack

The Balancer hack was not a simple opportunistic attack. It was a meticulously planned operation, executed by an experienced actor, as evidenced by the initial funding of the attacker's address with 100 ETH from Tornado Cash, a cryptocurrency mixing service [2].

The technical flaw

The exploited vulnerability resided in how Balancer calculated asset prices during "batch swaps." By manipulating this logic, the attacker was able to create an artificial imbalance in liquidity pools and withdraw funds before the system could correct prices. The attack's complexity was amplified by Balancer's very architecture, whose "composable vaults" enabled rapid propagation of the flaw across multiple interconnected pools.

Source: PeckShield, DeFiLlama [3]

The illusion of security

What makes this hack particularly troubling is that Balancer was far from being an obscure or negligent protocol in terms of security. Launched in 2020, it had survived multiple market cycles and was considered a conservative and reliable option for liquidity providers. The protocol had undergone more than 11 security audits by reputable firms [4].

"The fact that a protocol in service since 2020, audited and widely used, can still suffer a near-total TVL loss is a red flag for anyone who believes DeFi is 'stable'," stated Lefteris Karapetsas, founder of Rotki [5].

This statement highlights an uncomfortable truth: in DeFi, even the most audited and respected protocols are not immune to catastrophic risks.

Ethical analysis from an Islamic finance perspective

For Muslim investors, the Balancer hack highlights several conflicts with fundamental principles of Islamic finance.

1. Gharar (Excessive uncertainty)

The principle of Gharar prohibits transactions involving uncertainty, ambiguity, or excessive risk. The Balancer hack is an extreme manifestation of Gharar in DeFi:

• Technical uncertainty: Despite 11 audits, a critical vulnerability went unnoticed. The complexity of DeFi protocol code makes it nearly impossible for an average user to assess the real risk.
• Hidden systemic risk: The composable architecture, touted as a strength of DeFi, proved to be a risk amplifier, propagating the flaw at lightning speed. This systemic risk is rarely transparent to investors.

Investing in a protocol whose security cannot be guaranteed, even by experts, resembles a form of highly risky speculation, which is discouraged in Islam.

2. Amanah (Trust and responsibility)

The concept of Amanah refers to the trust and responsibility incumbent upon those who manage others' property. Although DeFi is "decentralized," developers and auditors have a moral responsibility toward users who entrust them with their funds.

• Developers' responsibility: By creating systems of such complexity, developers assume an implicit responsibility to ensure their security. Balancer's failure in this regard constitutes a violation of Amanah.
• Auditors' responsibility: Audits, presented as a security guarantee, created a false sense of confidence. The community must question the real value of these audits and the responsibility of the firms that conduct them.

3. Maslaha (Public interest)

The principle of Maslaha requires that actions undertaken serve the public interest and common good. The Balancer hack had negative consequences on the entire DeFi ecosystem, eroding trust and attracting regulators' attention.

For DeFi to one day serve the public interest, it must first resolve its fundamental security problems. Incidents like this harm the entire sector's reputation and slow its adoption by the general public, including the Muslim community.

Lessons for the Muslim investor

Faced with these risks, how should a Muslim investor approach DeFi?

1. Diversification and risk management

Never put all your eggs in one basket. Diversification is essential, not only across different assets but also across different types of protocols. Only invest in DeFi a portion of your portfolio that you are prepared to lose.

2. Favor simplicity

The most complex protocols are often the riskiest. Favor simpler, older protocols that have proven themselves over a long period. Complexity is the enemy of security.

3. Skepticism toward audits

As developer Suhail Kakar highlighted, "'audited by X' is no longer a mark of infallibility" [4]. An audit is not a guarantee. It reduces risk but does not eliminate it. Do your own research and do not rely solely on audit reports.

4. Understand systemic risk

Analyze how a protocol is interconnected with others. A problem on one protocol can quickly spread to others. Composability is a double-edged sword.

Conclusion: toward a more ethical and safer DeFi

The Balancer hack is a brutal reminder that DeFi, despite its promises of a more open and fairer financial system, remains an experimental and high-risk domain. For Muslim investors, it is imperative to approach this ecosystem with extreme caution and acute awareness of the ethical principles at stake.

This event should not turn us away from DeFi, but rather encourage us to demand higher standards of security, transparency, and accountability. The road to a truly ethical decentralized finance conforming to Islamic principles is still long, and it will inevitably pass through trials like this one.

As a community, we must encourage the development of simpler, safer, and more transparent protocols, and never forget that behind every line of code, there are real funds and the trust of real people.

References

[1] CNBC. (2025, November 3). Ether falls 7% following a multimillion dollar hack of a decentralized finance protocol. https://www.cnbc.com/2025/11/03/ether-falls-9percent-following-a-multimillion-dollar-hack-of-a-decentralized-finance-protocol-.html

[2] CryptoSlate. (2025, November 3). How 11 audits couldn't stop Balancer's $128 million hack redefining DeFi risks. https://coinmarketcal.com/en/news/how-11-audits-couldnt-stop-balancers-128-million-hack-redefining-defi-risks

[3] PeckShield & DeFiLlama. (2025, November 3). Data on the Balancer hack. Aggregated by CryptoSlate.

[4] Kakar, S. (2025, November 3). Post on X (formerly Twitter). https://x.com/SuhailKakar/status/1985331523646615664

[5] Karapetsas, L. (2025, November 3). Post on X (formerly Twitter). https://x.com/LefterisJP/status/1985300015548428789