Third-Party API Risks in DeFi Staking: Lessons from the SwissBorg $41M Solana Hack

In September 2025, SwissBorg, a prominent crypto wealth management platform, suffered a $41 million loss after hackers exploited a vulnerability in its partner Kiln's API, which facilitated staking operations for its Solana Earn programSwissBorg loses $41M in Solana following API-related hack^[1]. The breach, which siphoned 192,600 SOL tokens, underscores the systemic risks inherent in DeFi infrastructure, particularly the reliance on third-party APIs. This incident, coupled with broader supply chain threats, raises critical questions about the long-term viability of DeFi yield strategies for institutional investors.

The SwissBorg Hack: A Case Study in API Vulnerabilities

The attack on SwissBorg was not a direct exploit of its core systems but rather a manipulation of the Kiln API, a staking infrastructure providerSwissBorg loses $41M in Solana following API-related hack^[1]. By compromising the API's request-handling mechanisms, attackers bypassed standard security protocols to drain funds from the Solana Earn program. This highlights a critical flaw in DeFi's architecture: the delegation of trust to third-party services, which can become single points of failure.

SwissBorg's response—reimbursement from its Solana treasury and collaboration with blockchain investigators—demonstrates the immediate financial and operational impacts of such breachesSwissBorg loses $41M in Solana following API-related hack^[1]. However, the incident also exposed a deeper issue: the lack of rigorous audits for third-party integrations. As noted by industry analysts, APIs often serve as “hidden attack surfaces” in DeFi ecosystems, where vulnerabilities in off-chain infrastructure (e.g., poisoned updates, developer environment compromises) can cascade into on-chain lossesUnpacking $1.7B of DeFi exploits: what went wrong in Q1 2025?^[2].

Systemic Vulnerabilities in DeFi APIs and Supply Chains

The SwissBorg hack is part of a broader trend of supply chain attacks in 2025. For instance, a separate incident compromised 18 widely used JavaScript packages on npm, affecting over 2.6 billion weekly downloads and enabling hackers to intercept crypto transactions across multiple blockchainsSwissBorg loses $41M in Solana following API-related hack^[1]. These attacks underscore the interconnectedness of DeFi systems and the risks of relying on external dependencies.

According to the Enterprise Ethereum Alliance (EEA) DeFi Risk Assessment Guidelines, third-party API vulnerabilities are exacerbated by the absence of standardized security protocolsEEA DeFi Risk Assessment Guidelines - Version 1^[3]. Unlike traditional finance, where institutional-grade custody solutions are the norm, DeFi's open-source nature often prioritizes innovation over robustness. This creates a paradox: while DeFi promises efficiency and transparency, its reliance on unvetted APIs and smart contracts introduces operational risks that institutional investors must carefully evaluate.

Institutional Implications for Yield Strategies

For institutional investors, the SwissBorg incident highlights the fragility of DeFi yield strategies. By 2025, approximately 66% of traditional finance firms had engaged with DeFi, driven by the allure of high-yield staking and tokenized real-world assets (RWA)DeFi Report 2024-2025^[4]. However, the $41 million loss and similar exploits (e.g., a $2.4 million breach on Nemo Protocol in Q1 2025Unpacking $1.7B of DeFi exploits: what went wrong in Q1 2025?^[2]) reveal the volatility of these strategies.

Institutional adoption has been cautious, with many firms opting for permissioned DeFi platforms that integrate KYC/AML complianceDeFi Report 2024-2025^[4]. Yet, even these controlled environments face challenges. For example, the approval of U.S. spot Bitcoin ETFs in 2024 spurred institutional interest in tokenized assets, but regulatory uncertainty and integration hurdles persistDeFi Report 2024-2025^[4]. The SwissBorg hack further complicates this landscape, as institutions now weigh the potential returns of DeFi staking against the risk of systemic failures in third-party infrastructure.

Risk Mitigation and the Path Forward

To address these challenges, industry experts advocate for multi-layered risk management frameworks. Galaxy's SeC FiT PrO model, for instance, evaluates DeFi protocols across six domains—Security, Compliance, Finance, Technology, Protocol, and Operations—to assign risk scores tailored to institutional appetitesA Risk Rating Framework for DeFi and Crypto Investors^[5]. Similarly, the EEA guidelines emphasize the need for independent smart contract audits and standardized API security protocolsEEA DeFi Risk Assessment Guidelines - Version 1^[3].

Institutional investors are also turning to advanced tools like Chainalysis and Elliptic for real-time transaction monitoringA Risk Rating Framework for DeFi and Crypto Investors^[5]. These platforms help identify anomalies in supply chains and track stolen assets, as seen in SwissBorg's efforts to recover funds. Additionally, multi-signature wallets and multi-party computation (MPC) protocols are gaining traction as institutional-grade solutions to secure custody and transaction processesA Risk Rating Framework for DeFi and Crypto Investors^[5].

Long-Term Viability of DeFi Yield Platforms

Despite these risks, DeFi's long-term appeal for institutional investors remains strong. By 2025, the total value locked (TVL) in Bitcoin DeFi protocols had surged by 2,700% year-on-year, with platforms like Babylon and Core enabling BTC stakingDeFi Report 2024-2025^[4]. The tokenization of real-world assets and the rise of liquid staking derivatives further diversify yield opportunities.

However, the SwissBorg hack serves as a cautionary tale. Institutions must prioritize due diligence on third-party integrations, diversify across non-correlated assets, and align with regulatory frameworks like the EU's MiCA and Singapore's licensing regimesA Risk Rating Framework for DeFi and Crypto Investors^[5]. As one industry analyst noted, “DeFi's future hinges on its ability to balance innovation with operational resilience—a balance that requires both technological and governance advancements.”

Conclusion

The SwissBorg $41M Solana hack is a stark reminder of the systemic vulnerabilities in DeFi infrastructure, particularly the risks posed by third-party APIs and supply chain threats. For institutional investors, the incident underscores the need for rigorous risk management, technological safeguards, and regulatory alignment. While DeFi's potential for yield generation remains compelling, its long-term viability will depend on addressing these foundational weaknesses. As the financial system transitions into a hybrid model of TradFi and DeFi, the coming years will test whether institutions can navigate these risks while harnessing the efficiencies of decentralized finance.