Hedera Token Service Exploited

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Hedera Blockchain

Hedera Hashgraph is a decentralized, open-source, proof-of-stake public ledger that utilizes the leaderless, asynchronous Byzantine Fault Tolerance (aBFT) hashgraph consensus algorithm. It is governed by a decentralized council of leading enterprises, universities, and web3 projects from around the world. Hedera's performance-optimized Ethereum Virtual Machine (EVM) smart contracts, along with its easy-to-use native tokenization and consensus service APIs, enable developers to create real-time web3 applications and ecosystems that will drive the future of the internet. Unfortunately, there was an ongoing exploit that hit the Hedera network, which is targeting the decompiling process in smart contracts. At the time of writing, attackers have hit Pangolin and HeliSwap pools containing wrapped assets. Hedera has turned off network proxies on mainnet, effectively making it inaccessible, but "Hedera core" continues to work through the smart contract irregularity. The lack of certainty caused chaos, and what turned out to be around $515k stolen by the attacker turned into $12M of damage to the ecosystem.

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

About Hedera Blockchain

"Powering native web3 ecosystems and institutional applications for the next generation of the web"

"An open source, public network governed by leading organizations around the world The Hedera Governing Council is a decentralized and transparent governing body of independent, global organizations consisting of enterprises, web3 projects, and prestigious universities."

"The Hedera codebase and ecosystem standards are open source and contributed by the community through Hedera Improvement Proposals (HIPs). The community consists of Hedera application and ecosystem developers, node operators, and peripheral organizations."

"Hedera is a decentralized, open-source, proof-of-stake public ledger that utilizes the leaderless, asynchronous Byzantine Fault Tolerance (aBFT) hashgraph consensus algorithm. It is governed by a collusion-resistant, decentralized council of leading enterprises, universities, and web3 projects from around the world.

Hedera’s performance-optimized Ethereum Virtual Machine (EVM) smart contracts, along with its easy-to-use native tokenization and consensus service APIs, enable developers to create real-time web3 applications and ecosystems that will drive the future of the internet.

Hedera is built differently from other blockchains. It has high throughput with fast finality; low, predictable fees; fair transaction ordering with consensus timestamps; and a robust codebase that ensures scalability and reliability at every layer of its network infrastructure. Hedera is governed responsibly by the world’s leading organizations to ensure that the network is collusion-resistant."

"HTS was audited by FP Complete in 2021."

"An ongoing exploit have hit the Hedera network this morning.

The exploit is targeting the decompiling process in smart contracts.

At time of writing attackers have hit Pangolin and HeliSwap pools containing wrapped assets."

"we'd encourage anyone with HTS tokens in Pangolin Pools and Farms to withdraw immediately."

"We’ve noticed network irregularities that are impacting various Hedera dApps and their users.

The Foundation is in communication with impacted partners. We’re monitoring and working to help resolve the issue.

Please standby for more information."

"Due to some Hedera network irregularities, Hashport has paused their bridge, and we'd encourage anyone with HTS tokens in Pangolin Pools and Farms to withdraw immediately."

"Hedera turned off network proxies on mainnet, effectively making it inaccessible.

But 'Hedera core' continues to work through the smart contract irregularity."

"In an abundance of caution & safety for users, @Hedera is turning off network proxies on mainnet, making it inaccessible. @Hedera core is working through the smart contract irregularities & will re-enable proxies once resolved."

"In an abundance of caution for users, @hedera network services will not be accessible during this period of time. This includes wallets, decentralized & centralized exchanges, decentralized applications, etc."

"Staking rewards will continue to accrue during this time — however, you'll only be able to receive those accrued rewards once the network becomes accessible again."

"Fear, rumour and suspicion took hold as both users and devs attempted to make sense of the chaos.

The “proof-of-stake public ledger”, built on blockchain-alternative Hashgraph, saw its TVL plunge by a third since the attack, from $36.8M to $24.6M.

The HBAR Foundation announced “network irregularities” and, given the widespread nature of the attack, users frantically sought a safe haven for their funds."

"The team has identified the root cause of the issue and is working on a solution.

Attacker targeted liquidity pools on multiple DEXs that forked and ported Uniswap v2 to Hedera Token Service."

"Today, attackers exploited the Smart Contract Service code of the Hedera mainnet to transfer Hedera Token Service tokens held by victims’ accounts to their own account. (1/6)

The attacker targeted accounts used as liquidity pools on multiple DEXs that use Uniswap v2-derived contract code ported over to use the Hedera Token Service, including @Pangolin_Hedera, @SaucerSwapLabs, and @HeliSwap_DEX. (2/6)

When the attackers moved tokens obtained through these attacks over the @HashportNetwork bridge, the bridge operators detected the activity and took swift action to disable it. (3/6)

The Hedera community, including @swirldslabs, @HBAR_foundation, @LimeChainHQ, @Pangolin_Hedera, @SaucerSwapLabs, and @HeliSwap_DEX teams worked together to investigate the attack. (4/6)

To prevent the attacker from being able to steal more tokens, Hedera turned off mainnet proxies, which removed user access to the mainnet. The team has identified the root cause of the issue and are working on a solution. (5/6)

Once the solution is ready, Hedera Council members will sign transactions to approve the deployment of updated code on mainnet to remove this vulnerability, at which point the mainnet proxies will be turned back on, allowing normal activity to resume. (6/6)"

"The lack of certainty caused chaos, and what turned out to be around $515k stolen by the attacker, turned into $12M of damage to the ecosystem."

"In a Twitter thread, Hedera explained that “The attacker targeted accounts used as liquidity pools on multiple DEXs that use Uniswap v2-derived contract code ported over to use the Hedera Token Service”."

"The head of Pangolin published a preliminary writeup which states the teams believed that the exploit was “only affecting Hashport tokens. This proved to be false. Further investigation revealed all hts [Hedera Token Service] tokens were at risk”.

This allowed the attacker to burn bridged/wrapped tokens, as well as remove LP positions from the affected DEXs. According to the report, some funds were bridged back to ETH, after the Hashport team deactivated the bridge, the attacker turned to CEXs."

"The report puts losses from Pangolin at $120k. HeliSwap lost just $2K, according to their rundown of events.

The attacker’s alleged addresses contain a total of around $515k; ~$60k of HBAR and $280k of HTS stablecoins on Hedera, and $175k of ETH on Ethereum."

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

The background of the exchange platform, service, or individuals involved, as it would have been seen or understood at the time of the events.

Include:

• Known history of when and how the service was started.
• What problems does the company or service claim to solve?
• What marketing materials were used by the firm or business?
• Audits performed, and excerpts that may have been included.
• Business registration documents shown (fake or legitimate).
• How were people recruited to participate?
• Public warnings and announcements prior to the event.

Don't Include:

• Any wording which directly states or implies that the business is/was illegitimate, or that a vulnerability existed.
• Anything that wasn't reasonably knowable at the time of the event.

There could be more than one section here. If the same platform is involved with multiple incidents, then it can be linked to a main article page.

The Reality

This sections is included if a case involved deception or information that was unknown at the time. Examples include:

• When the service was actually started (if different than the "official story").
• Who actually ran a service and their own personal history.
• How the service was structured behind the scenes. (For example, there was no "trading bot".)
• Details of what audits reported and how vulnerabilities were missed during auditing.

What Happened

The specific events of the loss and how it came about. What actually happened to cause the loss and some of the events leading up to it.

Key Event Timeline - Hedera Token Service Exploited

Date	Event	Description
March 9th, 2023 3:02:11 AM MST	Funds Bridged To Ethereum	The first batch of funds are bridged to Ethereum by the attacker.

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?

Total Amount Lost

The total amount lost has been estimated at $515,000 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?

Total Amount Recovered

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

What funds were recovered? What funds were reimbursed for those affected users?

Ongoing Developments

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

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.