Fantasm Finance Contract Vulnerabilities

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Fantasm Finance

Fantasm Finance is a protocol creating a synthetic token which is 1:1 pegged against the Fantom token. Due to a missing condition check for the minimum amount of fantom, the smart contract hot wallet was vulnerable. A malicious user exploited this and made off with over 1,007 ETH from the hot wallet. Some remaining funds were whitehacked by the protocol team, and distributed to users. While the hacker has been made an offer, and there is some suspicion of who they are, no offer to return the funds appears to be on the table, nor has the Fantasm team come forward, so it appears that affected users bear the full impact of the breach.

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

About Fantasm Finance

"Dear Fantomians, we’re excited to announce the launch of Fantasm Finance!" "Welcome to Fantasm. Fractional-Algorithmic Synthetic Token pegged to the value of 1 FTM on Fantom Opera."

"Fantasm Finance is a DeFi project aimed at developing and popularizing synthetic tokens for the Fantom Ecosystem. Imagine having exposure to the price of FTM token without actually owning it. That’s not fantasy: it’s #Fantasm."

"With Fantasm Finance we introduce a decentralized solution to scale up volume of the FTM token by using our partial collateralized design where synthetic token supply of xFTM will be partially backed by FTM and partially by the FSM token. xFTM is a Fractional-Algorithmic Synthetic Token pegged to the value of 1 FTM on Fantom Opera."

"xFTM is a synthetic token pegged to the price of the FTM cryptocurrency on the Fantom Network. It is a fractional-algorithmic synthetic token pegged 1:1 to the dollar value of 1 FTM. In other words, the price of 1 xFTM equals 1 FTM."

TBD - Expand about section - see the template.

What Happened

"On March 09, starting at approximately 02:00 p.m. UTC, suspicious transactions related to the Fantasm protocol which resulted in a loss of $2.62M."

Key Event Timeline - Fantasm Finance Contract Vulnerabilities

Date	Event	Description
March 9th, 2022 6:34:12 AM MST	Funds Transferred From Tornado Cash	The attacker transfers BNB from the Tornado Cash protocol in two transactions.
March 9th, 2022 6:36:06 AM MST	Swapping BNB To USDC	The attacker swaps their BNB to the USDC stablecoin.
March 9th, 2022 6:39:21 AM MST	USDC Bridged To Fantom Network	The attacker uses the Celer Bridge to bring their USDC onto the Fantom network. They ultimately receive their USDC.
March 9th, 2022 6:46:57 AM MST	Attacker Obtaining FTM	The attacker obtains more FTM via a faucet and a swap from USDC.
March 9th, 2022 6:49:26 AM MST	Exploit Contract Deployed	The attacker deploys an exploit contract.
March 9th, 2022 7:42:00 AM MST	Urgent Announcement on Twitter	Fantasm Finance posts an urgent announcement on Twitter, recommending that all users redeem their XFTM. There is still a 1,820,012 FTM pool balance remaining at this time. The exploiter address is provided.
March 9th, 2022 8:11:00 AM MST	Exit From Liquidity Pools	Fantasm Finance recommends that users exit from their liquidity pools.
March 9th, 2022 8:18:00 AM MST	Some Collateral Whitehacked	Fantasm Finance posts to Twitter to announce that some of the FTM collateral reserve was whitehacked.
March 9th, 2022 8:20:36 AM MST	Fantasm Finance Exploited	Exploit transaction on the blockchain.
March 9th, 2022 8:52:00 AM MST	Twitter Apology Announcement	Fantasm Finance posts an announcement/apology on their Twitter, acknowledging the exploit and that they are still investigating it further.
March 10th, 2022 6:22:00 AM MST	Post-Mortem Published	Fantasm Finance publishes their post-mortem on the incident. This is shared on their Twitter. TBD more Twitter review. TBD review post-mortem and add in more timeline.
March 11th, 2022 10:03:23 PM MST	QuillAudits Summary Included	QuillAudits reports that Fantasm Finance, an algorithmic trading platform operating on the Fantom network, experienced an exploitation incident. The hacker managed to convert the platform's profits, amounting to $2.73 million (1,007 ETH), into ETH and redirected the funds through Tornado Cash.
March 16th, 2022 5:54:00 AM MDT	WhiteHack FTM Distribution	Fantasm Finance announces that they will be distributing 935k of whitehacked Fantom tokens to affected users. TBD more review.

Technical Details

"On March 09, starting at approximately 02:00 p.m. UTC, suspicious transactions related to the Fantasm protocol which resulted in a loss of $2.62M."

"The Exploiter [got] funds from BNB Chain via Tornado Cash", swapped "BNB to USDC via Pancakeswap", and "USDC to Fantom via Celer Bridge". "The Exploiter receive[d] USDC from Celer Bridge" and "FTM from a faucet". They then "Swap[ped] USDC for more FTM" and "deploy[ed] a contract [to] trigger the exploit".

"That contract exploited the error in Fantasm’s Pool contract where the developer missed the condition checking for the minimum amount of input FTM when minting XFTM." "This contract deployed by Exploiter repeatedly [minting] XFTM by input only FSM token without entering any FTM, collect[ing] XFTM token, [selling] XFTM token to FTM, buy[ing] more FSM and repeat the first step to get a larger amount of FTM."

"After exploiting the vulnerability, the hacker exchanged all the profits for ETH, and used Tornado.cash to mix coins across the chain to the Ethereum main network. According to statistics, the hacker made a profit of 1,007 ETH (about 2.73 million US dollars)." "Eventually, the exploiter sold all his FTM for ETH and bridged these ETH to Ethereum, again via Celer Bridge. The total amount exploited is 1008.498875252390151 ETH (approximately $2,622,097)"

Total Amount Lost

The total amount lost has been estimated at $2,626,000 USD.

Exploiter address: TBD follow this address.

52,844.411560322146244187 FTM transfered on March 9th, 2022.

Immediate Reactions

"Fantom’s on-chain synthetic asset protocol, Fantasm Finance, posted on social media that its FTM collateral reserves had been exploited, and called on users to exchange their XFTM immediately."

"URGENT ANNOUNCEMENT : Redeem your XFTM. Our FTM collateral reserve has been exploited, there is still 1,820,012 FTM pool balance remaining currently for redemption." "Please also exit from liquidity pools."

"Update: Some of the FTM collateral reserve has been whitehacked."

"[W]e apologize for the exploit event which just happened. A Post Mortem with compensation options will be published by tomorrow. We are analyzing the exploit right now. Most sincere apologies once again."

Fantasm Finance Twitter Announcement

Fantasm Finance initially posted a couple of urgent announcements and recommendations.

URGENT ANNOUNCEMENT : Redeem your XFTM

Our FTM collateral reserve has been exploited, there is still 1,820,012 FTM pool balance remaining currently for redemption.

Exploiter address:

https://ftmscan.com/address/0x47091e015b294b935babda2d28ad44e3ab07ae8d#tokentxns

We are looking into this right now, more details to follow immediately

Please also exit from liquidity pools.

They later followed this up with an announcement/apology on their Twitter.

Dear Community,

we apologize for the exploit event which just happened.

A Post Mortem with compensation options will be published by tomorrow. We are analyzing the exploit right now.

Most sincere apologies once again.

Ultimate Outcome

Fantasm Finance "performed a forensics analysis to provide more insight into transactions and actions taken by the exploiter."

"We have patched the vulnerability and shared the newly committed code with our auditor."

"[W]e have 935,415 FTM from white hacking the protocol ourselves once we became aware of the exploit. We will return this to users via a snapshot compensation at block height 32970600. This part will be returned to XFTM holders." "935k whitehacked FTM will be evenly distributed on Friday 18th to all XFTM holders during the snapshot. Under the Compensation Tab you can see your XFTM & FSM holdings at snapshot. There were around 4.9m XFTM at that time."

"We once again deeply apologize for the inconveniences caused by this. We encourage the attacker to reach out to the Fantasm team and begin a dialogue for the return of our users’ funds. They are impacting everyday users of DeFi and we would like them to do the right thing. We will honor a bug bounty of 10% upon returning of funds."

Fantasm Finance Post-Mortem

Fantasm Finance ultimately publishes a post-mortem on the incident.

Dear Fantasm Community and Partners, we would first and again like to sincerely apologize for the exploit which occurred yesterday. We also want to thank everyone who has helped us in handling this event and supported us in fixing the code vulnerability. We have patched the vulnerability and shared the newly committed code with our auditor.

Third Party Reports

Total Amount Recovered

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

Fantams finance distributed whitehacked funds.

Ongoing Developments

TBD

Individual Prevention Policies

The Fantasm Finance smart contract had limited smart contract validation performed by a single smart contract auditing firm. This failed to catch the missing condition check. Users should not have trusted their funds to a platform with only a single validation.

Avoid the use of smart contracts unless necessary. Minimize the level of exposure by removing or withdrawing assets whenever possible. Aim to choose smart contracts which have obtained third party security audits, preferably having been audited by at least three separate reputable firms. Pay attention to the audit reports, which smart contracts are covered, and whether the smart contract has been upgraded or modified since the report. Ensure that any administrative functions with the ability to remove funds from the smart contract are under the authority of a multi-signature wallet which is controlled by at least three separate and reputable entities.

Store the majority of funds offline. By offline, it means that the private key and/or seed phrase is exclusively held by you and not connected to any networked device. Examples of offline storage include paper wallets (seed phrase or key written down and deleted from all electronic media), hardware wallets, steel wallet devices, etc...

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

Platform Prevention Policies

This could have been prevented through further audits or storing funds in a multi-signature wallet. An industry insurance fund can assist affected users.

Further Smart Contract Auditing

Having two audits completed prior to launch, and a third audit after 3 months would have greatly decreased the chance the missing validation went unnoticed.

All aspects of any platform should undergo a regular validation/inspection by experts. This validation should include a security audit of any smart contracts, reporting any risks to the backing (of any customer assets, ensuring treasuries or minting functions are properly secured under the control of a multi-signature wallet, and finding any inadequacies in the level of training or integrity of the team. The recommended interval is twice prior to launch or significant system upgrade, once after 3 months, and every 6 months thereafter. It is recommended that the third party performing the inspection not be repeated within a 14 month period.

Implement Multi-Signature Wallet

As an alternative, having the majority of funds inaccessible to the normal functions of the smart contract would prevent their theft. Instead, these funds could be made available through a multi-signature wallet requiring a signed transaction from multiple individuals. This would limit the theft to only those funds in the hot wallet.

All wallets, minting functions, and critical infrastructure should be implemented with a multi-signature requirement, with a recommended minimum of 3 signatures required. This means that making important changes or approving spending will require the keys held by at least 3 separate individuals within the organization to approve. The multi-signature should be implemented at the lowest layer possible, all key holders should have security training, and all key holders should be empowered and encouraged to exercise diligence.

Establish Industry Insurance Fund

The industry insurance fund can provide an additional treasury and resources in the event of a failure to secure the system, while also establishing validators to help ensure the situation in the first place.

Work with other industry platforms to set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

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

Regulatory Prevention Policies

This could have been prevented through further audits or storing funds in a multi-signature wallet. An industry insurance fund can assist affected users.

Further Smart Contract Auditing

Having two audits completed prior to launch, and a third audit after 3 months would have greatly decreased the chance the missing validation went unnoticed. In addition, third parties may be able to suggest more secure fund storage structures such as a multi-signature treasury.

All platforms should undergo published security and risk assessments by independent third parties. Two assessments are required at founding or major upgrade, one after 3 months, and one every 6 months thereafter. The third parties must not repeat within the past 14 months. A risk assessment needs to include what assets back customer deposits and the risk of default from any third parties being lent to. The security assessment must include ensuring a proper multi-signature wallet, and that all signatories are properly trained. Assessments must be performed on social media, databases, and DNS security.

Establish Industry Insurance Fund

The industry insurance fund can provide an additional treasury and resources in the event of a failure to secure the system, while also establishing validators to help ensure the situation in the first place.

Set up a multi-signature wallet with private keys held separately by delegate signatories from seven prominent platforms and services within the industry. Establish requirements for contributions by all platforms and services within the country, designed to be affordable for small platforms yet large enough to cover anticipated breach events. Any breach event can be brought forth by a member platform or a petition of 100 signatures for consideration by the delegate signatories. A vote of 4 or more delegate signatures is required to release any funds, which could partially or fully restore lost funds based on their assessment.

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