LIDO FINANCE

DESCRIPTION OF EVENTS

"Lido lets you use your staked assets to gain yield on top of yield. Use your tokens (which earn daily staking rewards) as collateral, for lending, yield farming and more."

"Lido builds state of the art liquid staking protocols to grow the staking economy." "Lido lets users stake their assets for daily staking rewards. User can stake any amount of tokens - no minimum." "When staking Lido you mint staked tokens which are pegged 1:1 to your initial stake. Your staked tokens can be used across the DeFi ecosystem to compound your yield." "Lido lets you use your staked assets to gain yield on top of yield. Use your tokens (which earn daily staking rewards) as collateral, for lending, yield farming and more."

"On Oct 5, 2021, a vulnerability was reported via the Lido bug bounty program on Immunefi by an anonymous whitehat (who later turned out to be Dmitri Tsumak, the founder of StakeWise). The vulnerability could only be exploited by a whitelisted node operator and allowed stealing a small share of user funds."

"Staking liquidity solution Lido Finance discovered a loophole through the Lido vulnerability bounty program, which can be used by whitelisted node operators to steal a small portion of user funds. Approximately 20,000 ETH were exposed to risk at the time of the vulnerability report."

"The exploit is based on the fact that, as per the Ethereum consensus layer specification, the validator public key is associated with the withdrawal credentials (WC) on the first valid deposit that uses the public key. Subsequent deposits will use the WC from the first deposit even if another WC are specified."

"While this design choice is not an issue for self-stakers, it opens an attack vector for delegated staking, including liquid staking protocols. These protocols, Lido among them, use protocol-controlled WC to ensure only the protocol can withdraw users’ funds. In Lido’s case, WC point to a smart contract managed by the DAO. The current Ethereum consensus layer design allows a node operator to associate the validator’s public key with the validator-controlled WC by front-running a deposit transaction sent by a protocol with another deposit transaction specifying the same public key, validator-controlled WC, and 1 ETH amount. The end state is a validator managing 1 ETH of node operators’ funds and 32 ETH of users’ funds, fully controlled and withdrawable by the node operator."

"The exploit was initially reported on Ethereum Research Forum a long time ago. The presence of this vulnerability in the Lido codebase is a long-term oversight."

"The risk of the vulnerability being exploited was estimated to be low as it was only exploitable by the Lido node operators who are the DAO-whitelisted actors with reputation and skin in the game. Currently, the vulnerability is mitigated and the risk is zero."

"At present, the team has taken short-term remedial measures and is discussing and studying long-term solutions."

"As a short-term mitigation, Lido DAO voted to temporarily lower staking limits for all node operators to the level of currently staked keys. This effectively prevents any deposits from happening while the team is implementing the mid-term mitigation. This doesn’t stop the protocol or any of the integrations but will lower the yield generated by the further deposits by a fraction of a percent."

"The mid-term solution that was chosen and implemented involves establishing a Deposit Guardian Council. The Council members are tasked with running an offchain daemon that constantly checks and vets the onchain state. Deposits can only be made by the protocol if the current onchain state has been vetted by at least two-thirds of the committee members—this is enforced by verifying member signatures onchain. Note that users can still submit ETH and mint stETH at any time since all received Ether gets buffered and deposited in batches later."

"The better long-term solution would require upgrading the Ethereum consensus layer specification, making the front-running attack entirely impossible on the L1 without involving any trusted committee. This solution is currently being discussed within the Ethereum community."

"The white hat for reporting the vulnerability is Dmitri Tsumak, the founder of StakeWise, who is expected to receive the highest reward of the vulnerability bounty program of $100,000."

The Lido Finance project discovered a vulnerability which placed up to 20,000 ETH of user funds at risk, however it was only possible to be executed through an existing trusted DAO participant. The project awarded a $100k bounty to the individual who found the vulnerability.

SlowMist Hacked - SlowMist Zone (Nov 6)
Liquidity for staked assets | Lido (Dec 15)
audits/QSP Lido Report 12-2020.pdf at main · lidofinance/audits · GitHub (Dec 15)
audits/MixBytes ETH2 Oracle Security Audit Report 04-2021.pdf at main · lidofinance/audits · GitHub (Dec 15)
audits/Sigma Prime - Lido Finance Security Assessment Report v2.1.pdf at main · lidofinance/audits · GitHub (Dec 15)
Vulnerability Response Update - Lido (Dec 15)
Protect from deposit front-running vulnerability by skozin · Pull Request #357 · lidofinance/lido-dao · GitHub (Dec 15)
lido-improvement-proposals/lip-5.md at develop · lidofinance/lido-improvement-proposals · GitHub (Dec 15)
Lido Protocol Upgrade | Lido Finance (Dec 15)
Ethereum Price History - Table, Charts & CSV – ethereumprice (Dec 15)

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