ThorChain ETH Bifrost Exploit

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ThorChain

ThorChain is a protocol to allow trading between different blockchains. Their smart contract hot wallet was tricked into accepting a token that wasn't ETH as ETH. The attacker then withdrew the ETH.

ThorChain plans to reimburse all affected users from their own funds.

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

About ThorChain

"THORChain (RUNE) [is] a decentralized cross-chain transaction protocol." "Creating a secure cross-chain bridge is one of the most important milestones for the industry right now, and the race is on to be the first to provide it." "Founded in 2018, THORChain is a cross-chain exchange that facilitates transactions between the Binance, Ethereum, and Bitcoin blockchains, aiding in a difficult problem of inter-blockchain swaps without being compelled to pay sizable fees each time. This represents a tremendous pain point and the efforts of THORChain have been well-received, pushing up a token from a low of $0.00851264, two years ago, to a high of $20.89 two months ago." "THORChain entered into its guarded “Chaosnet” launch during April, facilitating cross-chain swaps across the Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Binance Chain networks."

"THORChain do[es]n't have assets synthetically tied to a price using an oracle. [They] rather arbitrage trading bots and individuals, seeking to squeeze a profit from the price differences of an individual cryptocurrency on different blockchains, keep the liquidity pool's volume high in the midst of regularly large price swings. Passive liquidity providers earn a steady stream of rewards, often representing an APR of 10%+, even after technical considerations like "impermenant loss" that chips away at total return if the tokens, when removed from the liquidity pool, that aren't at 100% at the same radio value as when you first staked them."

"Bifrost [is] a DeFi protocol that connects with Polkadot and different proof-of-stake blockchains." "The Bifröst Protocol enables multichain connectivity by building a bridge between blockchains. Cross-chain bridges address one of the decentralized community’s most vexing problems: interoperability. Inspired by Norse lore, Bifröst was the name given by the Vikings to the mythic, incandescent rainbow bridge that connected Midgard (Earth) to Asgard (the Heavens). Thus, it is the protocol’s ability to mesh disparate decentralized realms into one liquid, rapid and cohesive asset exchange network that differentiates THORChain from other trustless exchange applications."

"Merging multi-signature (multi-sig) account security, proof-of-stake (PoS) cryptoeconomic schemas and continuous liquidity pools (CLPs), Bifröst is an interoperable cross-chain bridge enabling compatibility with nearly all major unspent transaction outputs (UXTOs) and account-based assets, including code-forks and tokens. Put more simply, Bifröst is the glue that holds the entire THORChain ecosystem together, enabling the seamless trading of any digital asset across any distributed ledger."

"THORChain tweeted that a malicious attack against THORChain was discovered. THORChain nodes have responded and isolated defenses. The capital loss caused by this attack was US$140,000, but THORChain stated that user funds will not be affected. The fund pool will be used to make up for the leaked funds. The team stated that the path of the attack was that EthBifrost had a logical error in processing the same symbol as ETH. THORChain claimed that it repaired Bifrost within 30 minutes and adopted node defense to stop Bifrost and THORNode. The team said it will also invest funds for ongoing code reviews and monitoring."

"On June 28, 2021 ThorChain vulnerability in ETH Bitfrost was exploited which resulted in the theft of $140K worth of assets." "A small logic bug in the Ethereum Bifröst caused a carefully-crafted ERC-20 to be mis-interpreted as ETH.ETH and swapped into the network." "Total funds stolen: - 9352,4874282 PERP - 1.43974743 YFI - 2437.936 SUSHI - 10.615 ETH Total value: ~$139k" "Thorchain told CoinDesk a hacker deployed a custom contract that was able to trick its Bifrost Protocol into receiving a deposit of fake assets."

"0 mins : Unusual transaction reported from users 5 mins : DEVs acknowledge it and let node operators know 20 mins : Nodes stop the network, super majority needed. 2h : Software fix 4h : Super majority of nodes updated / fixed 6h : Resume swaps"

ThorChain "stated that ETH Bifrost was recently updated to allow the router to be “wrapped” by contracts to allow composability." "The fix is to initialise the assets with common.EmptyAsset and return before handling ERC20s. This was merged."

"The other issue that had to be dealt with was there were several pending attack transactions that had not yet been observed by THORChain, since the attacker continued their transactions after the network was halted. If the network was brought back online prior to processing the update, these transactions would have been processed, which would have been silly and a waste of funds. Logic was added to ignore these specific transactions, coming from specific addresses."

ThorChain plans to "Restore solvency to the vaults (funded by the Treasury), Refund Node Operator Bonds that were slashed when the network was brought partially back online and didn’t have full consensus, and Pay the Bug Bounty to the reporting user." "The community are looking for 30 days of no major bugs before mainnet. This classifies as a major bug, so the clocks are reset."

"There is a scheduled TrailOfBits audit in 2 weeks, which will do a full code-review. THORChain team will continue finding and scheduling audits, especially since the code is being upgraded to service THORFi, which adds to the complexity theatre."

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 - ThorChain ETH Bifrost Exploit

Date	Event	Description
June 28th, 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 $140,000 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?

General Prevention Policies

The primary issue with ThorChain is having almost all balances of tokens in a hot wallet. While all measures employed will reduce the possibility of future failures, there is no way to prove with certainty that a hot wallet or smart contract is completely secure.

A more secure model would place the majority of funds in a multi-sig requiring the signatures of multiple known node operators, who know how to properly secure the keys offline. Funds could be released as needed for immediate liquidity, with a smaller balance at risk in the insured smart contract hot wallet.

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.