Raft Finance experienced a severe security breach on Friday when a hacker managed to exploit a vulnerability in the protocol, resulting in the loss of approximately $3.3 million in ether.
The protocol originated as a fork of Liquity that replaced ether with staked ether as the collateral source backing its stablecoin, R. The exploit caused R to deviate from its intended $1 peg.
That prompted the team behind Raft to confirm the vulnerability and pause further minting to prevent additional losses.
According to a post-mortem blog post published Monday, the attacker was able to mint 6.7 million R, which was then swapped for 1,575 ether (ETH) causing R to de-peg.
In a surprising turn of events, the attacker then sent 1,570 ETH to a burn address, effectively removing it from circulation. This action left the hacker with only 7 ETH from the stolen funds.
Prior to the attack, the hacker’s address had received 18 ETH through a crypto mixer service, suggesting a level of premeditation and planning for the attack.
The circumstances of this attack are unusual, in that the large majority of the stolen funds were burned, leading to speculation about the attacker’s motives. The loss may have been accidental.
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The problem is that the code for converting R to ETH and transferring it to the exploiter was called from another contract using delegatecall
But delegatecall looks at the storage of the parent contract, in which the slot with the exploit address was not initialized pic.twitter.com/bkJdNQURXA
— Igor Igamberdiev (@FrankResearcher) November 10, 2023
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So, instead of sending ETH to the attacker, coins went to the null address, which has no private key, oopshttps://t.co/sjc3mtLlG3
— Igor Igamberdiev (@FrankResearcher) November 10, 2023
It’s not yet clear what comes next for the protocol and its users. Developers have promised an “in-depth recovery plan this week, outlining the steps to address the situation and provide redress for affected users,” the team said in its post-mortem statement.
“The Raft community will have the opportunity to provide feedback on the proposed recovery plan before it is concluded and the recovery plan is executed,” it said.
Raft issued a governance token (RAFT) in an airdrop on Oct. 11, intended to be staked to provide holders with voting rights over the protocol. The price of RAFT has plummeted about 60% since the exploit, per Coingecko.
Total value locked (TVL) in the protocol peaked in July at $64 million, and has been on a steady decline since, according to DefiLlama — just $1.48 million remains as of today.
Meanwhile, the formerly dollar-pegged stablecoin R is volatile with very limited liquidity on a handful of decentralized exchange markets. Although the developers have suspended the creation of new R tokens, users can still repay their R-related debts to retrieve collateral that is locked in the protocol.
