Defrost Finance Hacked in Attack Some Say May Have Been a Rug Pull

The total value of funds locked on the protocol had dropped to less $93,000 on Sunday from about $13 million, Defi Llama data shows.

AccessTimeIconDec 25, 2022 at 9:50 p.m. UTC
Updated May 9, 2023 at 4:05 a.m. UTC

Decentralized-finance protocol Defrost Finance said it was hacked on Friday, though blockchain security firm PeckShield, citing “community intel,” said the exploit may have been a rug pull that made off with $12 million and Certik, another security company, said it had been unable to contact members of the team.

In a tweet thread posted on Sunday, the Defrost team said a first attack used a flash loan to drain funds out of its V2 product. A second larger attack used the owner key to exploit V1. The protocol, which offers leveraged trading on the Avalanche blockchain, didn’t say how much had been taken.

PeckShield’s analysis showed the attack used a fake collateral token together with manipulated pricing.

A rug pull, or exit scam, can occur when developers create and establish a liquidity pool and then remove the funds and disappear after investors have bought the related token. The total value of funds locked on Defrost Finance, which peaked at $95 million in February, was about $13 million in recent weeks, Defi Llama data shows. That dropped to less than $93,000 on Sunday.

If the attack is a rug pull, it's an unusual one. Usually, the team behind the scheme goes silent and can't be contacted. Defrost Finance, however, announced the attack and said in a tweet that it's willing to negotiate with the people responsible for a return of the funds.

Still, an attempt to reach the firm through Twitter failed because direct messages have been disabled on the account. Certik tweeted on Monday that it tried "to contact multiple members of the team but have had no response." An accompanying graphic said it confirmed DeFrost as an exit scam.

DeFiYield, which offers a security layer for smart contracts to help investors avoid getting scammed or hacked, said it conducted an audit of Defrost Finance a year ago, and highlighted the smart contract vulnerability used in the hack.

Last year, crypto investors lost over $2.8 billion to rug pulls, according to a report by Chainalysis. Rug pulls accounted for 37% of the over $7.7 billion in total illicit revenue from crypto scams that year. The 2022 figure is likely to be higher: A report from blockchain risk-monitoring firm Solidus Labs shows that fraudsters deployed more than 117,000 scam tokens through Dec. 1, 41% more than in all of 2021.

UPDATE (Dec. 26, 10:04 UTC): Adds tweet comment from security auditor Certik in first, sixth paragraphs.


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Sheldon Reback

Sheldon Reback is a CoinDesk news editor based in London. He owns a small amount of ether.

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