Euler Finance Suffers a Major Loss of $195M in Flash Loan Attack


Noncustodial lending protocol Euler Finance experienced a devastating flash loan attack on March 13, resulting in the loss of more than $195 million in Dai (DAI), USD Coin (USDC), staked Ether (StETH) and wrapped Bitcoin (WBTC).

Recent data shows that the hack is the biggest of 2023 so far. Here is a breakdown of the stolen funds: 

Funds stolen from Euler Finance. Source: BlockSec.

Meta Sleuth, a crypto analytics firm, believes that the attack is connected to the deflation exploit from a month ago. The hacker used a multichain bridge to take the funds from the BNB Smart Chain (BSC) to Ethereum and initiated the attack today.

Movement of funds from Euler Finance. Source: Meta Seluth

ZachXBT, a well-known on-chain sleuth, also agreed that the attack bears similarities to the one carried out by black hats on a BSC-based protocol last month. After exploiting the protocol on BSC, the funds were deposited to the crypto mixer, Tornado Cash.

The stolen funds are lying in the following addresses:

  • 0xebc29199c817dc47ba12e3f86102564d640cbf99 (Contract) – 8,877,507.34 DAI
  • 0xb2698c2d99ad2c302a95a8db26b08d17a77cedd4 – 8,080.97 ETH
  • 0xb66cd966670d962c227b3eaba30a872dbfb995db – 88,752.69 ETH & 34,186,225.91 DAI

Euler Finance acknowledged the exploit and said they are working with security professionals and law enforcement to resolve the issue.

A detailed investigation by blockchain security firm Slowmist suggests that the attacker made use of flash loans to deposit funds and leverage them twice to trigger liquidation. The exploiter then donated the funds to the reserved address and triggered a self-liquidation to collect any remaining assets.

The success of the exploit is attributed to two factors. Firstly, the funds were not subjected to a liquidity check before they were donated to the reserved address, leading to a soft liquidation. Secondly, the soft liquidation was triggered by high leverage, allowing the liquidator to obtain most of the collateral funds by transferring only a portion of the liabilities to themselves.

Gustavo Gonzalez, solutions developer at the blockchain security firm OpenZeppelin, told Cointelegraph that the entire attack occured in a single transaction (one per pool) with flashloans from AAVE. He commented:

“There appears to be a bug in one of the Euler smart contracts, where it doesn’t check for the health factor when executing the donateToReservers() function. Because of that, the attacker was able to liquidate himself from the protocol, repay the flashloan and make a huge profit.”

Euler Finance attracted $32 million in a funding round last year with the participation of FTX, Coinbase, Jump, Jane Street and Uniswap.

Euler Finance is popular for its liquid staking derivatives (LSDs) services. LSDs are a new type of token that enable stakers to gain additional returns by unlocking liquidity for staked cryptocurrency, such as Ether (ETH). Currently, LSDs represent around 20% of total value locked in decentralized finance protocols.

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