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News/KyberSwap's $46.5 Million Loss Shocks Industry

KyberSwap's $46.5 Million Loss Shocks Industry

Van Thanh Le

Nov 24 2023

8 months ago4 minutes read
Chibi cubic-styled robot in digital marketplace, shocked by crypto heist aftermath

KyberSwap Exploit: The Shocking Discovery

On November 23, KyberSwap faced a catastrophic breach. This incident led to a massive loss, estimated at approximately $46.5 million in various cryptocurrencies. 

The exploit occurred on the KyberSwap Elastic platform, marking a significant security lapse. It wasn't confined to a single blockchain. The attack impacted several, including Arbitrum, Optimism, Ethereum, Polygon, and Base.

The nature of the exploit was complex, involving smart contract manipulation. This maneuver took advantage of KyberSwap's specific implementation of concentrated liquidity. Experts like Colkitt referred to it as an "infinite money glitch," highlighting the sophistication and severity of the attack.

The crypto community first noticed this anomaly. Among them, crypto pundit OlimpioCrypto was quick to report the hack, underscoring the vigilance and responsiveness of the crypto world.

In the wake of the KyberSwap exploit, the platform quickly advised users to safeguard their assets by withdrawing funds. 

Earlier in April, KyberSwap had detected a security flaw and issued a similar advisory, although that incident thankfully saw no fund loss. This proactive stance underscores their commitment to protecting user assets amidst emerging threats.

Financial Impact of the KyberSwap Exploit

The total loss from KyberSwap security breach is a staggering $46.5 million. This amount includes a loss of $20.78 million in wrapped Ethereum (wETH), $9.53 million in wrapped staked Ethereum (wstETH), and $4.1 million in ARB tokens.
The attacker's address. Source: DeBank

Diving deeper into the numbers, security auditor Hacken estimates the losses spread across various blockchains. Ethereum faced the brunt with a whopping $20 million vanished, while Arbitrum followed with a $15 million hit. 

The exploit also affected Optimism and Polygon, resulting in losses of $7.5 million and $2 million, respectively, and Base suffered a relatively minor loss of $315,000.

In response to the news of the exploit, the price of Kyber Network's native token, KNC, briefly dipped by 7%. However, it showed resilience, later recovering to $0.73. 


Another significant impact was on KyberSwap's Total Value Locked (TVL), which plummeted by 68% within hours, and kept dumping. This drop from a 2023 peak of $134 million to $7 million was not just due to the hack but also because of the nearly $78 million that left the protocol due to user withdrawals in the aftermath of the incident.
Source: DefiLlama

A Deep Dive into Technical Complexities

The exploit ingeniously targeted KyberSwap's concentrated liquidity feature, a critical component that allows liquidity providers to set precise buy and sell prices. This feature, designed to optimize trading efficiency, ironically became the fulcrum of the exploit.

The perpetrator's strategy involved a clever illusion of inflated liquidity. By manipulating the concentrated liquidity settings, the contract was tricked into overestimating the available liquidity. This misrepresentation laid the groundwork for the subsequent phases of the attack.

A critical move in this exploit was the acquisition of a flash loan. The attacker borrowed a substantial 10,000 wstETH, equivalent to about $23 million, from Aave. This significant sum was then strategically injected into the ETH/wstETH pool, causing an immediate and dramatic collapse in the price of wstETH.
Source: Etherscan

Following this, the attacker executed a series of calculated token deposits and withdrawals. These were not random transactions but a meticulously planned strategy to further manipulate the market prices. 

The exploit was magnified by a numerical bug in the protocol, which failed to properly remove liquidity during these swaps, leading to the liquidity being double-counted. The attacker made a profit of 2,859 wstETH ($6.7 million) after paying back the flash loan.

This tactic was not confined to a single instance. The same exploit methodology was replicated across various KyberSwap pools on multiple networks, each time exploiting the same vulnerability.

Despite the presence of a failsafe mechanism in KyberSwap's system, the attacker's carefully engineered strategy allowed them to evade detection initially. This level of complexity in executing the exploit led experts like Colkitt to regard it as one of the most intricately designed smart contract exploits witnessed to date. The exploit resulted in double liquidity counting and unauthorized fund withdrawals from multiple liquidity pools.

Security Measures and Community Dynamics

The identity of the exploiter, as revealed by blockchain sleuths, adds a dramatic layer to the unfolding events. The attacker, still active, boldly taunts KyberSwap's team and its community. 

Their tactics were intricate: employing a flash loan exploit, they manipulated DeFi mechanics, altering price ticks and asset swaps across liquidity pools. This involved depositing USDC on Aave, providing liquidity on Uniswap, and strategically leaving on-chain messages that detailed the exploit steps, laced with taunts.

Adding an unexpected twist, the attacker indicated a willingness to negotiate. They suggested the potential return of stolen funds or the pursuit of a whitehat bounty reward. This development brings a complex layer to the incident, blending technical prowess with a surprising openness to dialogue. 

The reaction of the crypto community to these developments has been mixed, ranging from humor to a certain desensitization, reflecting the unique and sometimes jaded culture of the crypto world in the face of frequent, high-profile security breaches.

Negotiations and Bounty Offer in the KyberSwap Exploit

The decentralized autonomous organization (DAO) steering KyberSwap showcased a strategic approach. They initiated a dialogue with the perpetrator. 

The DAO proposed a bounty. This was no small sum. They offered 10% of the stolen funds for their safe return. This equated to a substantial $5 million, underlining the severity of the situation. (1).png
Source: Etherscan

KyberSwap, facing a ticking clock, set a firm deadline. They demanded the return of the stolen funds by November 25, 06:00 UTC. This deadline created a sense of urgency, pushing for a resolution.

However, the situation took a mysterious turn. The hacker, having showcased their skills, remained silent. Their last communication was cryptic, stating negotiations would begin once they were "fully rested." 

This statement left the crypto community and KyberSwap in suspense. What does "fully rested" mean in the context of a hacker who has just pulled off a multi-million-dollar exploit?

Key Takeaway

The KyberSwap exploit underscores the persistent vulnerabilities in DeFi platforms, particularly in complex smart contract implementations. The sophisticated nature of the attack, involving flash loans and concentrated liquidity manipulation, highlights the need for enhanced security measures in DeFi protocols. 

The incident also reflects the growing trend of attackers engaging in negotiations post-exploit, a dynamic that adds a new layer to the DeFi security landscape. The significant financial impact and the subsequent community response underline the critical importance of robust security frameworks to foster trust and stability in the DeFi ecosystem.


1. What Was the KyberSwap Exploit?

The KyberSwap exploit was a sophisticated attack on the DeFi platform KyberSwap. Hackers manipulated smart contracts to steal approximately $46.5 million in various cryptocurrencies. The exploit involved complex contract manipulations, notably in the concentrated liquidity feature.

2. How Much Was Stolen in the KyberSwap Exploit?

Hackers stole around $46.5 million across multiple cryptocurrencies. This included $20.78 million in wETH, $9.53 million in wstETH, and $4.1 million in ARB, among others. The attack affected several blockchains, including Ethereum, Arbitrum, and Polygon.

3. What Measures Did KyberSwap Take Post-Exploit?

Post-exploit, KyberSwap advised users to withdraw funds as a precaution. They launched an investigation and reached out to the attacker for negotiations. KyberSwap also offered a bounty of $5 million, 10% of the stolen funds, for their safe return.

4. How Did the Hacker Manipulate the KyberSwap System?

The hacker exploited KyberSwap's concentrated liquidity feature. They tricked the system into overestimating liquidity levels. The attacker used flash loans and strategic token deposits and withdrawals to manipulate prices and extract funds.

5. What Are the Implications of the KyberSwap Exploit for the DeFi Sector?

The KyberSwap exploit highlights significant vulnerabilities in DeFi platforms, especially in complex smart contract implementations. It underscores the need for enhanced security measures and robust frameworks to ensure trust and stability in the DeFi ecosystem. The exploit also shows the growing trend of attackers engaging in post-exploit negotiations, adding a new dynamic to DeFi security.

This article has been refined and enhanced by ChatGPT.

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