Here’s How a Single Exploit Brought Down Ethereum Layer 2 Kinto

For Ramón Recuero, Kinto’s closure marks the second time he has had to oversee damage control after a hack. His previous project, Babylon Finance, was hit indirectly when Rari Protocol collapsed in 2022, leaving users with millions in unrecovered losses. This time, he is determined to exit openly rather than fade away.

“We’ve been working without salaries for months,” Recuero told the community, adding that continuing operations would only drag out the inevitable. Instead, he promised an orderly wind-down and partial reimbursement to users.

How the Collapse Unfolded

The fatal blow landed on July 10, when an attacker exploited a smart contract loophole on Kinto’s Arbitrum-based chain. By minting 110,000 counterfeit tokens, the hacker siphoned roughly $1.55 million from lending pools on Morpho and a Uniswap v4 vault. Within hours, Kinto’s token had lost 95% of its value.

The flaw had been flagged earlier by security researchers, but while other DeFi platforms patched, Kinto failed to act in time. The timing left the project exposed just as the exploit became public.

In the weeks that followed, the team launched a comeback effort called Phoenix, raising $1 million to reboot trading. A new $KINTO token was issued to restore balances for users, and liquidity pools were partially replenished. But the recovery loans became a heavy drag — and with new investors wary, Kinto’s financing prospects quickly evaporated.

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Protecting Users on the Way Out

As part of the shutdown, all remaining assets will go to the Phoenix lenders, who are expected to recover 76% of their principal. Recuero has also pledged $55,000 of personal funds to cover outstanding debts on Morpho, compensating victims up to $1,100 per address.

He framed the move as a conscious rejection of the “zombie mode” many failed projects slip into: “We’re shutting down cleanly and out in the open,” he said.

Kinto’s fall is the latest reminder that even compliance-oriented crypto ventures are not immune to the speed and severity of DeFi exploits. In a sector where trust can vanish in hours, the difference between survival and collapse often comes down to how much runway a team has left — and whether investors believe a recovery is worth funding.

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