Mar 15, 2023

Euler Finance Loses $197M in Flash Loan Attack

The decentralized finance (DeFi) lending protocol Euler Finance fell victim to a devastating flash loan attack on March 13, resulting in the greatest crypto hack of 2023 to date. The attack cost the protocol nearly $197 million and impacted more than 11 other DeFi protocols.

In response to the attack, Euler Finance issued an update on March 14, announcing the disabling of the vulnerable etoken module and donation function. The firm stated that they had previously worked with various security groups to audit the protocol, and the vulnerable code had been reviewed and approved during an outside audit. However, the vulnerability had gone unnoticed.

Sherlock, an audit group that had previously collaborated with Euler Finance, verified the root cause of the exploit and submitted a claim. The audit protocol voted on the claim for $4.5 million, which passed, and later executed a $3.3 million payout on March 14. Sherlock’s analysis report noted a significant factor for the exploit: a missing health check in “donateToReserves,” a new function added in EIP-14.

The firm also pointed out that the audit by WatchPug in July 2022 had missed the critical vulnerability that eventually led to the exploit in March 2023. Sherlock stands behind every auditor who reviewed Euler.

Euler Finance is now reaching out to leading on-chain analytic and blockchain security firms, such as TRM Labs, Chainalysis, and the broader ETH security community, for help in the investigation and recovery of the stolen funds. The firm is also attempting to contact the perpetrators of the attack in order to learn more about the issue and potentially negotiate a bounty for the stolen funds.

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