How Does Homora V2 Work?
Homora V2 is a leveraged yield farming protocol allowing up to 9x leverage on DEX liquidity positions, with $110M TVL across Ethereum, Avalanche, and other chains. Its C+ grade reflects the February 2021 $37.5M exploit (patched and re-audited), high leverage amplifying liquidation risk, and the custom spell system that expands smart contract attack surface beyond standard lending protocols.
TVL
$110M
Sector
DeFi
Risk Grade
C+
Value Grade
D
Core Mechanisms
6.1.1
Overcollateralized lending with leveraged yield farming positions
Standard lending with LP tokens as collateral
6.2.2
Kinked utilization curve for borrowing rates
Standard Compound-style interest rate model
6.3.2
Fixed-spread liquidation of leveraged farming positions
Standard liquidation with bonus for liquidators
6.4.1
Chainlink oracle feeds for underlying asset pricing
Single oracle feed without fallback for some assets
2.1.2
NovelCustom spell execution system for composable leveraged strategies
Novel: allows arbitrary strategy composition in single transactions, expanding attack surface beyond standard lending
How the Pieces Interact
9x leveraged positions amplify liquidation cascades during price drops; oracle delays on LP token pricing can cause premature or late liquidations
Custom spells composing multiple DeFi actions in single transactions can be exploited via flash loans to manipulate intermediate state, as demonstrated in the 2021 exploit
Vulnerabilities in underlying DEX protocols (Curve, Balancer, Uniswap) directly amplify losses for leveraged Homora positions
Separate deployments on Ethereum, Avalanche, Fantom, and Optimism create inconsistent security profiles and governance overhead
What Could Go Wrong
- The protocol suffered a $37.5M exploit in February 2021 via a complex flash loan attack that exploited missing input checks and rounding errors in Iron Bank integration — the codebase has since been patched and re-audited but the same core architecture remains.
- Leveraged yield farming up to 9x amplifies liquidation risk during volatile markets; oracle delays on underlying LP token pricing can cause cascading liquidations across leveraged positions.
- Dependency on external DEX protocols (Curve, Balancer, SushiSwap, Uniswap) for underlying yield strategies means vulnerabilities in those protocols directly affect Homora users.
- Custom spell system allows users to execute complex leveraged strategies in a single transaction, increasing smart contract attack surface beyond standard lending protocols.
Flash Loan Exploit via Spell System Composition
ModerateTrigger: An attacker discovers a state manipulation vulnerability in a new spell or spell combination, similar to the 2021 Iron Bank exploit vector, enabling extraction of lending pool funds via flash loan-powered transactions
- 1.Attacker identifies a rounding or state inconsistency in a spell's interaction with Homora lending pools — A repeatable extraction vector is established using flash loans for capital
- 2.Attacker executes exploit transactions draining lending pool assets — Lenders lose deposited funds as pool reserves are extracted
- 3.Remaining leveraged positions become undercollateralized as lending pool liquidity disappears — Borrowers cannot repay or exit positions, bad debt accumulates
- 4.Oracle price feeds trigger mass liquidations on remaining positions — Forced selling of LP tokens creates cascading price impact on underlying DEX pools
- 5.Protocol halts new deposits and borrows while assessing damage — TVL collapses as users withdraw remaining funds
Risk Profile at a Glance
Overall: C+ (40/100)
Lower score = safer