Lido Finance Vulnerability

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Lido Finance

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.

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

About Lido Finance

"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."

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 - Lido Finance Vulnerability

Date	Event	Description
October 8th, 2021	Main Event	Expand this into a brief description of what happened and the impact. If multiple lines are necessary, add them here.

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 $71,513,000 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.