FTX Hack

The catastrophic failure of the widely used digital asset exchange FTX, with the loss of billions of dollars in cash, was the most significant cryptocurrency event of 2022 and perhaps the most important news story of the year.

In addition to filing for Chapter 11 bankruptcy on November 12, the celebrity-backed exchange was the target of an unknown cyberattack.

About $640 million worth of tokens were stolen from many wallets believed to belong to FTX. The money was then transferred to other cryptocurrency exchanges and changed into other digital currencies.

Unfortunately, the thief or thieves responsible for the missing funds remain unknown. New FTX management’s attorney, James Bromley, said during the collapsed exchange’s first court hearing that a significant proportion of the exchange’s assets are either lost or stolen.

$566,000,000 for Binance (Binance Smart Chain)

On October 6, hackers stole $566 million worth of BNB from a blockchain affiliated with the largest cryptocurrency exchange in the world.

This vulnerability affected the inter-chain bridge BSC Token Hub. The hackers basically created tokens out of thin air by forging withdrawal proofs. However, the assault against Binance did not result in user losses on the Binance blockchain.

Although a large number of tokens were stolen, the perpetrators could not get away with them all; according to Binance CEO Changpeng Zhao, the exchange was able to keep between 80% to 90% of the stolen assets safe.

It is because, after the assault, validators on the BSC chain halted the network, but hackers did transfer around $100 million to other chains.

$552,000,000 for Ronin

In March, hackers stole an estimated $552 million in Ethereum and USDC from Ronin, a sidechain for the widely played NFT game Axie Infinity. One week after Axie Infinity creator Sky Mavis announced the flaw, the total worth of the stolen cash had reached $622 million.

What strategy did they employ? The “hacked private keys” were used to make fake transactions and steal money.

Approximately $7 million in Ethereum was transmitted to cryptocurrency mixing provider Tornado Cash for fast laundering.

U.S. Treasury investigators subsequently found cryptocurrency wallet addresses that they believed belonged to the Lazarus cyber organization in North Korea.

$326 million Wormhole

It was a terrible year for decentralized financial protocols. DeFi is a catch-all word for the still-evolving category of applications that banks and brokerages use to automate routine tasks. It implies there is a safety concern, especially with bridges, which enable users to move cash across different blockchains.

The famous bridge, Wormhole, was vulnerable to an attack in February. Tokens were minted by hackers who focused on Solana (where users lock Ethereum within a smart contract in exchange for a similar amount of Wrapped Ethereum, or WETH). About $120,000’s worth of WETH tokens. That equated to around $326 million back in the day.

In the DeFi ecosystem, WETH, a token tied to the price of Ethereum at a ratio of 1:1, facilitates rapid monetary transfers.

Wormhole’s parent business, Jump Trading, a prominent participant in the Solana ecosystem, stepped in to replace the stolen goods and restore bridge service.

Nomad, $190 million

In August, there was a second attack on a bridge. All of Nomad’s Ethereum, USDC, DAI, FXS, and CQT were stolen by hackers who took advantage of a flaw in the update. Nomad is a service that allows users to exchange digital assets across multiple blockchains.

The money began trickling back in when the protocol’s backers promised a 10% incentive to hackers who returned the tokens (without imposing law enforcement).

Although around $22 million was recovered from the incident, it led the FBI to issue a warning to investors about the increased interest of cyber criminals in exploiting weak DeFi systems.

The $100M Harmony Bridge Hack

Another $100 million in various cryptocurrencies were stolen via a breach of the Horizon Bridge, which connects Ethereum, Bitcoin, and BNB Chain to Harmony’s layer-1 blockchain.

Because the money was laundered in a manner consistent with known Lazarus Group operations, blockchain forensics company Elliptic has concluded that the breach was carried out by that group of North Korean cybercriminals.

It is believed that Lazarus stole employee login credentials for the Harmony platform, compromised the site’s security, and took control of the protocol before using automated laundering programs to transfer funds.

The Wintermute $160M Hack

Approximately $160 million in 70 different tokens were stolen from the hot wallet of United Kingdom-based crypto-exchange Wintermute.

CertiK, a blockchain security company, conducted an analysis and found that a private key presumably produced by Profanity, an app that lets users construct vanity crypto addresses, was exploited.

Using the private key, the attacker could then perform a function that, according to CertiK, would enable the attacker to replace the swap contract on the platform with the attacker’s own.

BlockSec, a blockchain security company, disproved rumors that the attack was an “inside job” because of the method by which it was executed.

$182 million Beanstalk Farms

Beanstalk Farms is an Ethereum-based stablecoin system. Tokens called STALK were utilized in this technology. It would need the consent of the majority of STALK holders in order for any assets to be transferred out of Beanstalk Farms.

A hacker purchased a controlling stake in STALK via a flash loan (a very short-term crypto loan) in April. They then utilized STALK tokens to propose a huge transfer of cash and approve it. An estimated $80 million in profits were made by the hacker, but the attack led the stablecoin to fall, leading to total losses of $182 million.

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Is DeFi Useful?

DeFi uses the concept of Bitcoin, digital currency, and develops on it to provide a digital alternative to Wall Street that doesn’t have all the overhead (think office towers, trading floors, banker salaries). This has the ability to make it so that anybody with access to the internet may participate in free and fair financial markets. 

What Are the Advantages?

• Easy: Available without application of any kind. Simply creating a wallet will get you access.
  Pseudonymous: no need to tell your real name or email address.
• Cheap: you may relocate your assets whenever you choose without having to wait for transactions to complete or pay hefty fees.
• Rapid:  Updated often (as often as every 15 seconds), and typically interest rates are substantially higher than standard Wall Street interest rates and awards.
• Completely open: the transactions may be tracked in detail (private corporations rarely grant that kind of transparency).

How Does It Function?

Dapps (short for “decentralized apps”) are the primary means by which users interact with DeFi; at present, the majority of these applications are built for and operate on the Ethereum network. There is no need to fill out paperwork or create an account as at a regular bank.

Examples of common uses for DeFi include: 

Online exchanges, also known as decentralized exchanges (DEXs), allow users to trade one currency for another, such as US dollars for bitcoin or ether for DAI. Direct exchanges (DEXs) are becoming more popular because they eliminate the need for a trusted third party in cryptocurrency transactions. 

Stablecoins are digital currencies whose value is pegged to a fiat currency such as the US dollar or the Euro. 

In the case of lending platforms, smart contracts serve as an alternative to traditional middlemen in the form of financial institutions like banks. 

Wrapped bitcoins (WBTC) are a form of transferring bitcoin to the Ethereum network that may then be utilized on the DeFi platform without any further conversions. Through the aforementioned decentralized lending services, WBTCs enable users to earn interest on the bitcoin they give out. 

Prediction markets are places where people may wager on the results of future events, such as elections. DeFi iterations of prediction markets aim to provide the same features but without the need for any third-party aggregators.

In addition to these applications, additional DeFi ideas have emerged: 

Yield farming: This trading strategy, known as “yield farming,” allows risk-taking investors to sift among a wide variety of DeFi tokens in search of those with the highest potential returns. 

What we call “liquidity mining” occurs when DeFi apps provide free tokens to users in the hopes of luring them to their platform.

Composability: The source code for DeFi applications is freely available to anybody online. Since their code is modular, it may be used to “compose” new applications. 

What Are the Drawbacks?

• Active trading on the Ethereum blockchain might become costly because to the fluctuating transaction rates.
• Given the immaturity of the technology, the value of your investment may change dramatically depending on the dapps you choose to employ and how you decide to put them to work.
• For tax reasons, you must keep your own records. Different jurisdictions may have different rules.

The post Ultimate Guide to DeFi, and How to Take Part appeared first on Crypto Market Insights: Dive In with CryptoUpdate.io.

Exploiter of the Mango Markets Is Caught

At about the middle of October, Eisenberg had compromised the DeFi protocol. Through the use of two identities, he artificially inflated the price of Mango’s crypto token MNGO by 1,300 percent in just an hour by selling several perpetual contracts from one account to the other. He then borrowed $110 million in more cryptocurrencies from Mango Markets using the token as security, and promptly withdrew the money. To put it another way, he effectively stole all the cryptocurrency stored on the DeFi network.

Eisenberg engaged in a scheme involving the intentional and artificial manipulation of the price of perpetual futures contracts on a cryptocurrency exchange called Mango Markets, and other manipulative and deceptive devices and contrivances,

according to a deposition signed by an FBI Special Agent named Brandon Racz.

Agreement Reached with Mango Markets

Also, after a week of manipulation, he finally acknowledged to being involved in draining the DeFi protocol. Nonetheless, he justified his behavior by saying it was legitimate.

I believe all of our actions were legal open market actions, using the protocol as designed, even if the development team did not fully anticipate all the consequences of setting parameters the way they are.

Tweet from Avraham Eisenberg (@avi eisen) dated October 15, 2022.

He went so far as to say that because of his activities, Mango Markets went bankrupt and clients lost access to their money. Later on, he reached an agreement with Mango Markets in which he would pay back $67 million to the DAO that oversaw the protocol.

The protocol creators will not “pursue any criminal investigations or freezing of money after the tokens are returned back,” according to a message issued to the Mango Markets community following the settlement.

As of right now, Eisenberg is being accused of commodities fraud and commodities manipulation. If he’s found guilty, he might go to jail and have to pay a fine. It’s also the very first time law enforcement in the United States has taken legal action against someone for breaking a DeFi protocol.

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