Macauley Peterson

Two recent catastrophic exploits of two DeFi protocols differed in many ways, yet shared one commonality — both were audited multiple times.



Raft Finance, a stablecoin provider inspired by Liquity but backed by staked ether, fell victim to an infinite mint bug two weeks ago. KyperSwap saw its liquidity pools drained on Nov. 23.



The Raft team’s post-mortem <a href="https://mirror.xyz/0xa486d3a7679D56D545dd5d357469Dd5ed4259340/_Nk6_1_VvInyC0pdvHiZuAXiqm6tYSsGYGHSfOhcO1I">analysis</a> of the incident pointed out that, “the exploited Raft smart contracts were <a href="https://docs.raft.fi/additional-information/security">audited</a> by Trail of Bits and Hats Finance. Unfortunately, the vulnerabilities that led to the incident were not detected in these audits.”



Kyber Network similarly flagged its platform’s audits from vaunted security experts, including 100proof, ChainSecurity and participants in an audit competition organized by Sherlock.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">7/ Security measures we’ve taken include internal smart contract checks, &amp; audits by 100proof (whitehacker), ChainSecurity, &amp; community developers via Sherlock’s audit competition. We encouraged further checks on the smart contracts through our Bug Bounty Program with Immunefi.&mdash; Kyber Network (@KyberNetwork) <a href="https://twitter.com/KyberNetwork/status/1728115872403976485?ref_src=twsrc%5Etfw">November 24, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Raft procured even more audits by Curious Apple and Aviggiano throughout 2023, indicating ongoing security evaluations and improvements​​ that have led onlookers to <a href="https://x.com/davgarai/status/1723351273817219445">question</a> the assumption that an audited protocol is necessarily safe.



Read more: <a href="https://blockworks.co/news/exploit-ether-defi-protocol">Raft Finance floats user bailout plan after odd exploit</a>



What’s needed is a “paradigm shift” in how blockchain projects tackle threats in the face of examples like these, says Halborn’s chief operating officer Dave Schwed, highlighting “sophisticated manipulation of smart contract functions.”



“It highlights the importance of projects taking a proactive and layered approach to security, beyond just relying on external audits,” Schwed told Blockworks.



Other smart contract specialists, including Yearn Finance security researcher Storming0x, concur. They <a href="https://x.com/storming0x/status/1724239791837917554">said</a> on X that it’s “a waste for a project to get an audit” absent attention to other best practices.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">IMO is a waste for a project to get an audit without good testing, coverage, fuzzing and at least 1 good peer review. Why? Because a good auditor will find most evident high issues at surface given the small amount time but not have time to go in depth. 7/ <a href="https://t.co/t64H0RVtC2">pic.twitter.com/t64H0RVtC2</a>&mdash; Storm Blessed 0x (@storming0x) <a href="https://twitter.com/storming0x/status/1724239791837917554?ref_src=twsrc%5Etfw">November 14, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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It is also difficult for ordinary users to tell whether an audit covers the final code in production.



<h2 class="wp-block-heading">The <s>Devil</s> vulnerability is in the details</h2>



Theoretically, a user could compare the audited code with the current published version, Schwed noted.



“Most audit reports show, or should show, a hash of the repo of the code that was audited,” he said. “There should be some automated mechanism to compare the code audited and the code in production enhancing transparency and trust.”



Michael Lewellen, head of solutions architecture at Open Zeppelin, noted that &#8220;change management&#8221; — ensuring the production version matches the audited one — was not an issue in Raft&#8217;s case. However, he does see a tendency for some development teams to ignore the advice of their auditors.



“Trail of Bits, despite missing the bug itself, did note in their report that the Raft codebase could have made improvements to their testing and verification,” Lewellen told Blockwoks.



“These recommendations should not be taken lightly by projects that might otherwise assume the audit report gives them the all-clear to launch without making improvements to other parts of their security stack,” he added.



<h2 class="wp-block-heading">Making users partly whole</h2>



After receiving feedback that it was unfair to exclude those who sold their R following the depeg event, Raft <a href="https://forum.raft.fi/t/raft-recovery-plan/237">retracted</a> its initial recovery plan.



A revised “recovery plan” was <a href="https://docs.raft.fi/additional-information/raft-recovery-plan-claim-your-dai">published</a> Friday, giving victims <a href="https://x.com/raft_fi/status/1728038665736290780?s=20">until</a> the end of March 2024, to recoup a portion of their losses.



“After substantial feedback from the Raft community, the Raft Recovery Plan has been finalized, resulting in a 42% recovery rate. This guide is for all the affected users who were included in the Raft Recovery Plan to claim their DAI,” the plan said.



For Kyber, <a href="https://blockworks.co/news/kyberswap-hacker-stole-48m">the scale of the loss was significantly greater</a> — some $48 million. The road to recovery is still unclear.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">9/ We are grateful for the overwhelming support from those who have offered assistance in aiding in the investigation. Our heartfelt appreciation goes out to our users &amp; partners who believe in our product &amp; mission. Updates will be provided as the situation unfolds.&mdash; Kyber Network (@KyberNetwork) <a href="https://twitter.com/KyberNetwork/status/1728115876749275229?ref_src=twsrc%5Etfw">November 24, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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The KyberSwap exploit, noted for its <a href="https://twitter.com/KyberNetwork/status/1728115867580527071?s=20">unusual sophistication</a>, has left DeFi users wondering about the level of yield that could justify their risk-taking.



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Latest DeFi exploits show audits are no guarantee

David Canellis

Some victims of the $48 million KyberSwap hack are no doubt waiting anxiously for the DeFi platform’s attacker to make their next move.



Others, though, seem to be taking a more proactive approach: talk directly to the exploiter through the Ethereum blockchain.



“Hello! You did amazing job, you are amazing man!” one person wrote in a message attached to a transaction overnight.



“Im drained for over $155k USDC, you can check my wallet. Could you please send some $ to help my family? I can get you the funds into any wallet just help me out please! :(.”



Other messages are much more formal: “Hello sir/madam! I was lp [liquidity provider] on [Arbitrum] — 259809.7 DAI.”



“I would like to negotiate, and ask how much would you be willing to take as a bounty? I believe code is law, and its totally up to you. Thanks in advance!”



KyberSwap aggregates liquidity across DeFi into a single pool, enabling services such as decentralized exchanges and wallets to offer end-users instant token swaps through a web of smart contracts.



Chain watchers first <a href="https://twitter.com/spreekaway/status/1727462694138024249">spotted</a> something was up with KyberSwap on Wednesday evening. Millions of dollars in crypto were suddenly siphoned from KyberSwap contracts deployed to Ethereum, Polygon, Coinbase’s Base, Arbitrum and Optimism, with the latter two hardest hit.



A complicated series of flash loan attacks and other targeted exploits had <a href="https://twitter.com/0xdoug/status/1727613541115429314">resulted</a> in emptied token liquidity pools.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/ Finished a preliminary deep dive into the Kyber exploit, and think I now have a pretty good understanding of what happened. This is easily the most complex and carefully engineered smart contract exploit I&#39;ve ever seen&#8230;&mdash; Doug Colkitt (@0xdoug) <a href="https://twitter.com/0xdoug/status/1727613541115429314?ref_src=twsrc%5Etfw">November 23, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



KyberSwap responded by urging users to pull funds from the platform, with about $77 million quickly withdrawn. Now, less than $8 million is kept with KyberSwap, per DeFiLlama.



So far, the stash remains in the hacker’s various addresses. After the attack subsided, the hacker initiated <a href="https://etherscan.io/tx/0x7a8912583520304ce2364fa165dafe94461a91ab2dcf45dab942e296594dc40a">a transaction</a> with the following message:&nbsp;



“Dear Kyberswap Developers, Employees, DAO members and LPs, Negotiations will start in a few hours when I am fully rested.”&nbsp;



That was about a day and 18 hours ago. Nothing since.



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/Qa4Bi4XQdpFucYMd0vZJt1jSqbNzxAXJl2LUcp4eX-WF_5lCXaTLGcuag-adxrf8cxjnZ0KQZ1XhqevIIW-5depXGNsK205H2UfLpTLnGY9xO6Mjj7tBbtHk9yMls9I5XSBtOOv9MLOXWpFzomh8Khc" alt=""/><figcaption class="wp-element-caption">Ethereum allows messages to be added to the input data field when sending transactions. This one cost about $2.</figcaption></figure>



While some messages tell the hacker they could keep some of the crypto if they return the rest, it’s unclear whether notes like “if that money are gone my children can school anymore, because don&#8217;t have money again, please help me” are legitimate stories from real victims.



Some messages are more lighthearted: One says: “hi. congrats for the hit thats a crazy thing, you looks like a smart, arrogant &amp; funny guy, could we talk in telegram or else? :)”



Another: “Hi legend pls send me 1mill to become the top g for life, thx love u”



There are others that offer advice: “I don&#8217;t know what you want to do next, but just want to remind that stablecoins like USDC have an address blocking function in the smart contract code.” A few even apparently sent tips, including some for 0.001 ETH ($2.06) and one for 0.0000069 ETH ($0.014).



Often hackers wait days, months, or even years before attempting to launder stolen crypto. Sometimes, the hacker returns the funds after taking 10% or 20%, playing off the whole thing as a gray-hat stunt.



Who knows where the Kyber case will end up.&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-us.googleusercontent.com/YZ0qPRtT3xcaAOvr2JREsX_dWSkjDfC-HUqtIhY_wMqLu3d6KEt9oVxAX4JLe22URrmhMwtTTxX9k-XHJYjfegLD5aigo5RazgEMq3yGHdZac8Hz_y9Wkf-QNJk5r9IgmzyaRLSsF9hfxorYHO3cYhY" alt=""/><figcaption class="wp-element-caption">Whether it’s real or pretend, this message is still sad</figcaption></figure>



In any case, it wasn’t bad enough that Ethereum network participants had to cryptographically verify the integrity of CryptoDickButts and Pixelverse Poops.



Now, they must forever ensure nonsense like, “Could you teach me your ways senpai? I too would like to make generational wealth in seconds please,” remains untampered-with, forever written to the blockchain. Great.



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Fan mail and ETH tips sent to KyberSwap hacker who stole $48M

James Cirrone

DeFi protocol Kyber Network announced a “<a href="https://twitter.com/KyberNetwork/status/1647920799557505028?s=20">potential vulnerability</a>” on its automated market maker (AMM) platform KyberSwap Elastic on Monday.



While there is relatively little information on the current issue, difficulties may have arisen after a user named Zal encountered an error while withdrawing single-sided liquidity from the platform. After the user posted screenshots of their issue to the Kyber discord, team member Michael_E responded saying, “Your&nbsp; Lp must have gone out [of] range and sold to one of the [tokens] you used in adding liquidity.”



Shortly thereafter, the team took to Twitter to announce that it had temporarily taken all of Elastic’s liquidity pools offline in order to address the vulnerability. The company tweeted that it is investigating, and reassured participants that “no user funds are lost.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">1/2 Attention KyberSwap Elastic Liquidity Providers: We have identified a potential vulnerability, and as a precaution we strongly advise all Liquidity Providers to withdraw your funds on Elastic as soon as possible. Investigations are ongoing and no user funds are lost.&mdash; Kyber Network (@KyberNetwork) <a href="https://twitter.com/KyberNetwork/status/1647920799557505028?ref_src=twsrc%5Etfw">April 17, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Kyber also strongly advised liquidity providers to “withdraw your funds on Elastic as soon as possible.”



KyberSwap Classic, the company’s original liquidity protocol, was not affected by the potential exploit.



Blockworks previously reported that <a href="https://blockworks.co/news/binance-identifies-suspects-who-stole-from-kyberswap-whales">KyberSwap suffered a $265,000 hack</a> in September 2022 that Binance helped to unravel. At the time, KyberSwap offered a 15% bounty to the hacker, amounting to around $40,000, if they returned the money.



Kyber Network did not respond to questions by time of publication.



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KyberSwap Elastic Faces ‘Potential Vulnerability’

Shalini Nagarajan

<div id="highlights-block_631600497a278" class="highlights">
 <ul>
 <li>KyberSwap has offered a 15% bounty to its hackers if the stolen funds are returned</li>
 <li>Binance previously helped recover funds stolen from Curve Finance and Axie Infinity</li>
 </ul>
 
</div>



Binance may have helped crack last week’s $265,000 hack on decentralized exchange (DEX) platform KyberSwap.



Binance CEO Changpeng Zhao <a href="https://twitter.com/cz_binance/status/1565976776710430721" target="_blank" rel="noreferrer noopener">said</a> on Saturday that his exchange’s security team identified two suspects behind the attack, and that their identities have been forwarded to the KyberSwap team.&nbsp;



On Sept. 1, KyberSwap issued an <a href="https://blog.kyber.network/notice-of-exploit-of-kyberswap-frontend-963aa8febd6a" target="_blank" rel="noreferrer noopener">alert</a> to notify users that a hacker exploited a frontend vulnerability which led to the draining of two whale wallets on Ethereum and Polygon.&nbsp;



The team discovered malicious code in its Google Tag Manager (GTM) which led to fraudulent transaction approvals, which allowed a hacker to transfer user funds to their account. The GTM was then disabled, according to a blog.



“The script had been discreetly injected and specifically targeting whale wallets with large amounts,” KyberSwap said.



The DeFi platform, which doubles as both a DEX and a liquidity protocol, offered a 15% bounty (around $40,000) to the hacker if they returned the funds and spoke with the team. Compromised addresses would be fully compensated, the network said.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true"><a href="https://twitter.com/hashtag/Binance?src=hash&amp;ref_src=twsrc%5Etfw">#Binance</a> security team has identified two suspects for yesterday&#39;s KyberSwap hack. We have provided the intel to the Kyber team, and are coordinating with LE (law enforcement). Stay <a href="https://twitter.com/hashtag/SAFU?src=hash&amp;ref_src=twsrc%5Etfw">#SAFU</a>. <a href="https://t.co/tbQBGaGTNG">https://t.co/tbQBGaGTNG</a>&mdash; CZ 🔶 Binance (@cz_binance) <a href="https://twitter.com/cz_binance/status/1565976776710430721?ref_src=twsrc%5Etfw">September 3, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Around the same time as the KyberSwap incident, privacy-focused startup ShadowFi also <a href="https://medium.com/@ShadowFi/shadowfi-the-exploit-44733d1f8cb0" target="_blank" rel="noreferrer noopener">suffered</a> a cyberattack leading to around $301,000 in losses. PeckShield <a href="https://twitter.com/ShadowFi_/status/1565919551186935808" target="_blank" rel="noreferrer noopener">identified</a> the hacker as NeorderDAO, a little-known crypto collective whose website is now offline.



Binance has often shown commitment to helping out crypto projects. Last month, the exchange managed to <a href="https://cms.blockworks.co/binance-recovers-majority-funds-stolen-in-curve-finance-hack/" target="_blank" rel="noreferrer noopener">recover</a> a majority of the funds hackers stole from DeFi protocol Curve Finance. It also <a href="https://twitter.com/cz_binance/status/1517385438469791749" target="_blank" rel="noreferrer noopener">helped</a> Axie Infinity recover nearly $6 million allegedly stolen by North Korean hacking unit Lazarus Group in April.&nbsp;



DeFi hacks have been exploding in the past two years, hitting over <a href="https://cms.blockworks.co/defi-exploits-top-1-8b-ytd-though-security-getting-better-immunefi-says/" target="_blank" rel="noreferrer noopener">$1.2 billion</a> in the first quarter of this year alone, according to Immunefi. The Federal Bureau of Investigation recently <a href="https://cms.blockworks.co/fbi-issues-warning-over-defi-exploits-open-source-development/" target="_blank" rel="noreferrer noopener">warned</a> against such exploits, saying cyber criminals are on the lookout to abuse the complexity of cross-chain functionality.&nbsp;



Kyber’s KNC token has fallen 5% since the hack to $1.65, data from <a href="https://www.tradingview.com/chart/?symbol=FTX%3AKNCUSD" target="_blank" rel="noreferrer noopener">TradingView</a> shows.



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