DEFROST FINANCE

DESCRIPTION OF EVENTS

"Unfreeze Your Way to Wealth - Defrost Finance is the platform behind the next generation stablecoin and provides remunerative investment opportunities. A fully fair launch, decentralized project, its aim is to change the world of finance for good."

"A New Stablecoin Minted with LP Tokens - Backed by Liquidity Provisions tokens, H2O is the stablecoin of the future, maintaining a 1:1 peg to the US dollar at all times. It is safely overcollateralized and capable of powering any financial instrument."

"Defrost is a community-based project. Participants can deposit their assets in Liquidity Pools from swaps and mint H2O to acquire MELT, the platform’s governance token. This not only allows you to stake assets but gives you a seat at the table when decisions are made."

"The Defrost V1 is a protocol that allows users to utilize liquidity pool (LP) tokens and other pool tokens from Avalanche protocols as collateral for generating H2O. It has two vital parts, the vaults collecting collateral for generating H2O and the H2O token itself, which circulates on the market."

"Vault participants deposit LP assets in Defrost V1 vaults as collateral for generating H2O." "Over time, H2O holders acquired the soft-pegged token for a variety of purposes, including leveraging their positions, participating in H2O mining, getting transaction fees by providing liquidity to dexes, or speculating on the price of H2O itself when de-pegging occurred."

"H2O holders interacted with four contracts in Dexes, including Curve, Platypus, Trader Joe, and ELK."

"3/4 The same - or another - hacker also managed to steal the owner key for a second, much larger attack on the V1.

"The far-larger second attack occurred on Christmas Eve, the spokesperson continued, with another hacker or hackers “[managing] to appropriate the private key and used it to add a fake collateral token and price oracle, then minted 100 million H20 tokens … The hacker then liquidated the existing vaults by manipulating the vaults’ oracles and draining funds.”"

"In a tweet thread posted on Sunday, the 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.

Blockchain security firm PeckShield, citing “community intel,” said at the time that the exploit may have been a rug pull that made off with $12 million. Earlier Monday Certik, also a security company, said it had been unable to contact members of the team and posted a graphic indicating it was treating Defrost as an exit scam. Defrost's Twitter account isn't configured to accept private messages."

We are currently working on finding out how exactly the aggressors managed to obtain the key and used it to exploit the protocol."

"It must here be considered that there were collateral losses to the vaults during the Terra/UST crash earlier this year, which lead to 923,081.08 units of H2O backed by the UST/USDC — Pangolin (SV_II) vault actually being backed by almost zero value. This became bad debt in the system and should be considered as a factor putting downward pressure on the fair price. In other words, the theoretical fair value of H2O should also take into account collateral adequacy."

"The total H2O debt in the V1 vaults was 13,012,640.80, of which, 923,081.08 units were bad debt. Therefore, the theoretical fair value of H2O will be (13,012,640.80–923,081.08)/13,012,640.80 = 0.929 USD.

We intend to use 0.929 USD/H2O as the unit value of adjusted H2O debt in the refund calculation. (For more details, please feel free to check the G column, named ‘Adjusted H2O Debt considering H2O fair value’ in the ‘Vault Refund’ sheet in the shared excel file.)"

"LPs in Curve, Platypus, Trader Joe, and ELK will have different weights when refunding. The weight of LPs in Trader Joe and ELK is doubled since another paired asset was needed when providing liquidity on those platforms. The weight of LPs in Curve is applied to the number of LP tokens in Curve as the unit value of the LP tokens is close to 1 USD."

"It is believed that the attacker (or attackers) added a bogus collateral token and a malicious pricing oracle to the flash loan assault to liquidate consumers. Some have claimed that the “exit scam” may have been the work of team members, including blockchain security firms Peckshield and CertiK, in addition to asset management platform DeFiYield, given that an admin key was required to exploit the vulnerability.

However, the Defrost Finance team finally responded to the claims on December 28 in an exclusive statement saying:"

‘We refute claims that the squad is comprised of tough users. As much as the incident may cast doubt on people’s perceptions, a compromised key does not necessarily mean a rug pull.’

"Defrost Finance’s primary defenses against being involved were two.

First, according to Defrost, if they had intended to stage a rug pull, they would have done it months ago when the total value locked (TVL) was getting close to $200 million.

On December 23, the day of the initial attack, Defrost Finance’s TVL, according to DefiLlama, had dropped to just $13.14 million. When our TVL was 15 times more than it is now, anyone behind a rug pull would have likely misled investors.

Second, according to Defrost Finance, if they had been the culprits, they would have “fled” long ago, but they haven’t."

"On Dec. 26, Defrost announced on Twitter it had managed to recover all the funds taken in the v1 hack, sharing in a post on Medium hours later that it has begun the process of returning funds to affected users."

"Defrost Finance did not release any communication with the hacker and did not say how they recovered the funds. Notably, the firm did not disclose whether they paid a bounty to the hacker and to what amount."

Defrost Finance, the platform behind the stablecoin H2O, which aims to revolutionize finance, suffered a second attack on V1, following the initial exploit on December 23, 2021. The contract had originally been audited by CertiK in November 2021. After shutting down V2 for further investigation, the platform repeatedly assured users that V1 was not affected. Shortly thereafter, all funds were taken from the V1 version by an individual with access to the private keys. After multiple firms called out their concerns that the project had rug pulled, they reportedly were offering the hacker a 20% bounty. The following day all funds had been returned with no bounty going to any hacker. They were distributed to users in the next couple weeks.

Stankoman comments on Do Defi audits mean nothing? 2 Defi protocols audited by Certik exploited for a combined $14M in the same day. (Mar 16)
Do Defi audits mean nothing? 2 Defi protocols audited by Certik exploited for a combined $14M in the same day. : CryptoCurrency (Feb 1)
defrost.finance (Feb 1)
https://web.archive.org/web/20220331034039/https://www.defrost.finance/home (Feb 1)
Defrost V1 Refund - Google Sheets (Feb 2)
https://medium.com/@Defrost_Finance/details-of-the-defrost-finance-refund-plan-ba574236158d (Feb 2)
Hackers liquidate Defrost Finance, triggering a $12m loss (Feb 2)
@Defrost_Finance Twitter (Feb 2)
@Defrost_Finance Twitter (Feb 2)
Defrost Finance responds after accusations of rug pulling (Feb 2)
Defrost Finance Says Hacked Funds Have Been Returned (Feb 2)
https://cointelegraph.com/news/defrost-finance-offers-20-payment-to-hackers-as-certik-claims-project-is-an-exit-scam (Feb 2)
https://dailycoin.com/defrost-finance-claims-hackers-returned-12-million/ (Feb 2)
https://medium.com/@Defrost_Finance/the-refund-contract-has-been-deployed-here-is-how-to-claim-your-refund-6632c53f6c5c (Feb 2)
https://cointelegraph.com/news/defrost-finance-breaks-silence-on-exit-scam-accusations-denies-rug-pull (Feb 2)
@De_FiSecurity Twitter (Feb 2)
@De_FiSecurity Twitter (Feb 2)
https://medium.com/@DeDotFiSecurity/exclusive-the-defrost-team-rugpulled-12m-7m-999b24c13f47 (Feb 2)
Transaction Details - Snowtrace  (Feb 2)
Defrost Finance Hacked in Attack Some Say May Have Been a Rug Pull (Feb 2)
Defrost_Finance | Twitter | Linktree (Feb 2)
Defrost finance says it has recovered lost funds worth $12 million from hacker (Feb 2)
@CertiKAlert Twitter (Feb 2)
Defrost Finance fails to rug pull (Feb 2)
Defrost Finance loses over $12M: hack or rug pull? | CryptoTvplus - The Leading Blockchain Media Firm (Feb 2)
EXCLUSIVE: THE DEFROST TEAM RUG PULLED $12M + $7M (Feb 2)
@Defrost_Finance Twitter (Feb 2)
@Defrost_Finance Twitter (Feb 2)

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