NFT Lending on Flow Network Faces Critical Setback Amid Security Incident

MidnightSeller · 2026-01-04T18:08:14+00:00

On December 27, Flow Network faced a significant security incident leading to cascading failures in its NFT lending ecosystem. The suspension of the Cadence execution environment caused liquidity crises for borrowers, resulting in defaults on 8 out of 11 loan positions. Essential functionalities remained compromised even after basic operations resumed, preventing borrowers from fulfilling their obligations. As of December 30, all loan settlements are frozen, leaving positions in limbo. Flow's market value reflects ongoing operational challenges and borrower confidence concerns.

MidnightSeller

2026-01-04 18:08:14

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The Flow Network encountered a significant security incident on December 27 that triggered cascading failures in its NFT lending ecosystem. According to reports, Flowty’s lending protocol was caught in the crossfire, with the network’s extended suspension creating a liquidity crisis for borrowers who needed to repay their loans.

The Damage: Numbers Tell the Story

When the Flow Foundation maintained its Cadence execution environment offline through December 29, the timing proved catastrophic for the lending market. Flowty disclosed that 11 loan positions reached maturity while the network remained inaccessible. Of these, 8 loans formally defaulted due to the inability to execute transactions, while another 2 positions couldn’t be settled because borrower accounts were locked or restricted from accessing settlement mechanisms.

Why Repayment Became Impossible

The core issue extended beyond mere network downtime. Even after Flow Network restored basic operations, critical infrastructure remained compromised. Token swap functions and other essential exchange mechanisms stayed offline, preventing borrowers from converting their holdings into the specific assets required to cover loan obligations. This functional bottleneck transformed a temporary outage into a structural default event.

Current Status and Ongoing Suspension

Flowty responded by implementing a broader protective measure: all loan settlement operations have been frozen starting December 30 at 14:15 UTC. Any loan position maturing during this freeze period exists in limbo—neither officially repaid nor marked as defaulted. This pause essentially resets the clock for affected borrowers, though it also prevents protocol operations from moving forward.

Flow (FLOW) currently trades at approximately $0.10, reflecting market sentiment around the network’s operational challenges and the broader question of whether suspended networks can maintain borrower confidence in lending protocols.

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