Layer-1 blockchain protocol Saga has faced a severe crisis after a smart contract exploit on its SagaEVM chain resulted in nearly $7 million in losses.
The incident has compelled the team to halt operations, triggering a sharp sell-off of its native assets.
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$7 Million Exploit Sparks Panic on Saga L1
Saga confirmed in a statement that the exploit occurred on January 21, 2026. The Layer 1 (L1) cited a coordinated sequence of contract deployments, cross-chain activity, and subsequent liquidity withdrawals.
They paused the chain at block height 6,593,800 while the team investigates and mitigates the incident. SagaEVM remains halted as engineers validate the full impact and implement safeguards to prevent further breaches.
The company emphasized that the Saga mainnet, consensus mechanisms, and validator security remain intact. Bad actors did not compromise signer keys.
What Happened and the Implications for Saga Dollar Token and Network’s TVL?
Reportedly, the attacker exploited a vulnerability in the protocol’s cross-chain messaging system. With this access, they minted Saga Dollar (D) tokens out of thin air. They bridged them to Ethereum and converted to ETH via decentralized exchanges such as 1inch, CowSwap, UniV4, and KyberSwap.
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Threat researcher Vladimir noted that the funds were traced to 0x2044697623afa31459642708c83f04ecef8c6ecb, and Saga is actively coordinating with exchanges and bridges to blacklist the address.
The immediate fallout was dramatic. Saga Dollar briefly lost its $1 peg, falling to $0.75, and its total value locked (TVL) plunged over 55% within 24 hours, dropping to $16.07 million.
Saga TVL. Source: DefiLlamaMeanwhile, data on CoinGecko shows the Saga Dollar token is currently trading around $0.7559, down 24% from its previous levels.
Saga Dollar (D) Price Performance. Source: CoinGeckoSponsored
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Cosmos Ecosystem Reeling: Mars Protocol Plots March Shutdown
The exploit echoes broader turmoil in the Cosmos ecosystem, where Mars Protocol announced a complete wind-down following a previous exploit that left roughly $960,000 in bad debt concentrated in its USDC lending market.
The Mars Protocol Foundation will operate only until March 23, 2026, to conduct a controlled shutdown and mitigate risk. Meanwhile, the Amber Protocol may continue under new management.
The Neutron Foundation has been tasked with coordinating independent remediation efforts for affected users.
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Saga, Cosmos, and Mars Protocol are all interconnected within the broader Cosmos ecosystem.
- Cosmos is the foundational ecosystem and tech stack (SDK + IBC).
- Saga is an infrastructure layer/project built on Cosmos SDK, enabling easy deployment of many appchains (including potential for DeFi or gaming-focused ones).
- Mars Protocol is a DeFi application/protocol operating within the Cosmos ecosystem, using its own Cosmos SDK chain (Hub) and IBC for cross-chain functionality.
While they are not directly integrated, they coexist and thrive within the same interconnected Cosmos.
The dual shocks, Saga’s $7 million exploit and Mars Protocol’s exit, reflect growing systemic risks in the Cosmos ecosystem and L1 smart contract projects. It highlights vulnerabilities in cross-chain protocols and the need for stronger operational safeguards.
Saga has pledged to publish a comprehensive post-mortem once investigations are complete.
Source: https://beincrypto.com/saga-blockchain-exploit-mars-protocol-shutdown/
