Term Finance's DeFi Fixed Rate Lending Protocol Vault Suffers Governance Attack with Losses of Approximately $8.5 Million
The vault of DeFi fixed rate lending protocol Term Finance has suffered a governance attack, with losses estimated at approximately $8.5 million by PeckShield and CertiK.
The attacker transferred about 2,843 ETH and $1.68 million USDC, converting the USDC into DAI, with the funds ultimately concentrated in a single address.
The attack targeted the Term Strategy Vaults based on the Yearn V3 architecture, with Yearn explicitly stating that the vulnerability stemmed from Term's custom governance mechanism deployed outside the vault, while standard Yearn vaults were unaffected.
The governance transaction for the Term vault originally had a 7-day time lock and allowed LPs to vote to veto, but the relevant protective mechanisms failed to prevent the attack.
Before the attack, the Term vault had a TVL of approximately $12.45 million, with this loss accounting for about 68% of the total TVL. Term Labs is still investigating the specific path of the attack.
Funds flowed from the fixed rate lending vault to an address controlled by the attacker, exposing event-driven security risks, with low liquidity governance tokens and custom wrapping layers under pressure, while the Yearn standard architecture benefited relatively, and the number of DeFi governance attack cases increased.
Source: Public Information
ABAB AI Insight
As a fixed rate lending protocol, Term Finance previously suffered a loss of approximately $1.5 million in May 2025 due to oracle decimal mismatches. This governance attack further exposes the vulnerabilities of its custom governance layer, similar to the manipulation risks faced by early protocols like Compound and MakerDAO when governance token distribution is insufficient.
The attacker started with only 2 ETH from Tornado Cash, acquiring a majority of voting rights at a low cost and withdrawing funds through legitimate governance processes. The motivation was to achieve low-cost control by exploiting the sparse governance structure, strategically avoiding code vulnerabilities and directly attacking the decision-making layer.
This is highly similar to the 2022 Beanstalk governance attack and several cases of low liquidity DAOs being manipulated through flash loans or token hoarding. Currently, DeFi is transitioning from code audits to strengthening governance design and voting power distribution.
Essentially, this is a market self-correction before regulatory changes. The design flaws in governance mechanisms are magnified as capital scales up, forcing protocols to reconstruct time locks, veto rights, and token distribution through actual losses, pushing the industry from "code is law" to "governance is security".
ABAB News · Cognitive Laws
A time lock cannot stop a silent majority
Sparse governance is the cheapest attack surface
Custom wrapping layers often become the weakest link