Rari Capital Hack

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Rari Capital

The Rari Capital hack is the latest attack among many increasingly sophisticated attacks occurring in the DeFi space. The platform, as well as Alpha Finance, were both audited smart contracts.

The good news in this case is that the community came together to assist those who were affected by the hack, with developers giving up their own funds that had been allocated to them to affected users.

This is a global/international case not involving a specific country.

About Rari Capital

"Rari Capital is working on building a series of products with the goal of increasing market efficiencies within the crypto-sphere. Our first product is software that can rebalance users holdings across a series of protocols to deliver the highest yield." "Start earning with our yield aggregator product. It's as easy as depositing and watching the number go up."

The Reality

"Rari claims the code was previously audited by a blockchain security company called Quantstamp, but says "they were not aware" of the exploit." "Unfortunately, the Rari Capital contributors were not aware that `ibETH.totalETH()` could be manipulated for the duration of these external calls from `ibETH.work`, nor were we aware of the flexibility of `ibETH.work` to call any contract." "[T]his incident underscores the importance of double-checking how liquidity share calculations are performed in DeFi protocols. Although the ratio of deposited value to total token supply should be invariant, attackers have demonstrated multiple times that these values can be eliminated." "Rari Capital plans to undergo additional security audits of their contracts. While the contracts were previously audited by Quantstamp, engaging multiple auditors with different perspectives can help with ferreting out these complex vulnerabilities before they can be exploited by an attacker."

What Happened

"On May 8, 2021, Rari Capital, a DeFi project, was the victim of a smart contract hack."

Key Event Timeline - Rari Capital Hack

Date	Event	Description
May 8th, 2021	Smart Contract Hack	"On May 8, 2021, Rari Capital, a DeFi project, was the victim of a smart contract hack."

Technical Details

This section includes specific detailed technical analysis of any security breaches which happened. What specific software vulnerabilities contributed to the problem and how were they exploited?

"[T]he attack against Rari Capital took advantage of how liquidity shares were calculated by a smart contract within the project." "[T]he hackers were able to extract ETH from Rari by manipulating the code around an affiliated DeFi protocol, Alpha Finance." "Using the ibETH.work function, they inflated the value of ibETH within Rari Capital’s pool by inflating the value of ibETH.totalETH. They then called the withdrawal function of the Rari Capital Ethereum pool, extracting more ETH than they initially deposited due to this inflated value. This allowed them to drain the pool of value contributed by other Rari Capital users."

Total Amount Lost

"$11 million in Ethereum was stolen from its platform." "This loss equates to 60% of all users’ funds in the Rari Capital Ethereum Pool."

The total amount lost has been estimated at $11,000,000 USD.

How much was lost and how was it calculated? If there are conflicting reports, which are accurate and where does the discrepancy lie?

Immediate Reactions

How did the various parties involved (firm, platform, management, and/or affected individual(s)) deal with the events? Were services shut down? Were announcements made? Were groups formed?

Ultimate Outcome

What was the end result? Was any investigation done? Were any individuals prosecuted? Was there a lawsuit? Was any tracing done?

"Rari [also] plans to set aside 2 million RGT (the project’s governance token) to compensate the users who lost money in the hack." "All of the protocol contributors have elected to give that 2M $RGT back to the DAO with the ask of using the newly acquired $RGT to reimburse lost funds and reward those that helped in the war room," "To be clear: this is not a company or even the DAO itself making depositors whole — it is the exceptional individuals who have poured their time, talent, and creativity into this protocol and this community, each choosing to put their own financial well-being secondary to our collective mission."

Total Amount Recovered

There do not appear to have been any funds recovered in this case.

"Rari [also] plans to set aside 2 million RGT (the project’s governance token) to compensate the users who lost money in the hack." "All of the protocol contributors have elected to give that 2M $RGT back to the DAO with the ask of using the newly acquired $RGT to reimburse lost funds and reward those that helped in the war room,"

Ongoing Developments

What parts of this case are still remaining to be concluded?

General Prevention Policies

Smart contracts are not known for having good judgement when it comes to detecting if a transaction is suspicious or not. That's a skill which human beings have innately.

There are some tasks best left to a human being, and confirming large withdrawals is one of them. For the best results, a multi-signature wallet can be used to ensure each outgoing transactions receives appropriate scrutiny.

Where smart contracts or hot wallets are used, it's best to manage these using capital of the firm, or to have losses insured by a multi-platform crypto-based fund such as we propose in our framework.

Individual Prevention Policies

No specific policies for individual prevention have yet been identified in this case.

For the full list of how to protect your funds as an individual, check our Prevention Policies for Individuals guide.

Platform Prevention Policies

Policies for platforms to take to prevent this situation have not yet been selected in this case.

For the full list of how to protect your funds as a financial service, check our Prevention Policies for Platforms guide.

Regulatory Prevention Policies

No specific regulatory policies have yet been identified in this case.

For the full list of regulatory policies that can prevent loss, check our Prevention Policies for Regulators guide.