The Risks of DeFi: Smart Contract Bugs and Hacks

Detailed Instructions

Attackers begin by analyzing the target protocol's publicly verified smart contract code on block explorers like Etherscan. They look for common vulnerability patterns such as reentrancy, improper access control, or flawed price oracle logic. Automated tools and manual review are used to find a weakness that can be manipulated for profit.

• Sub-step 1: Code Audit: Manually review the contract's Solidity code for logic errors, focusing on external calls and state changes.
• Sub-step 2: Dependency Check: Examine imported libraries (e.g., OpenZeppelin) for outdated versions with known CVEs.
• Sub-step 3: Test Interaction: Deploy a local fork of the mainnet using Foundry or Hardhat to test potential attack vectors without risk.

Tip: Many exploits, like the infamous PolyNetwork hack, stem from overlooked access control flaws in contract upgrade mechanisms.

Detailed Instructions

Once a flaw is identified, the attacker develops a custom exploit contract. This contract's functions are designed to interact with the vulnerable protocol in a sequence that forces an unintended state, such as draining funds. The contract is rigorously tested on a forked network.

• Sub-step 1: Write Attack Logic: Code the exploit, often involving a recursive call for a reentrancy attack. For example:

solidityCopy
function attack() external payable {
    target.withdraw(); // This call triggers a reentrant callback to this contract
}
function receive() external payable {
    if (address(target).balance >= 1 ether) {
        target.withdraw(); // Reenters during the same transaction
    }
}

• Sub-step 2: Simulate on Fork: Use anvil or ganache to fork mainnet at a specific block (e.g., block 15815693) and confirm the exploit works.
• Sub-step 3: Calculate Profit: Determine the maximum extractable value (MEV) by simulating the attack's end state.

Tip: Attackers often use flash loans from protocols like Aave to amplify their capital, requiring the entire exploit to be executed in a single transaction.

Detailed Instructions

Execution requires gas fees and, potentially, upfront capital. Attackers often use privacy tools like Tornado Cash to obfuscate fund sources before this step. The exploit contract is then deployed to the main Ethereum network or another EVM chain like BSC or Polygon.

• Sub-step 1: Obfuscate Funds: Route initial ETH through a mixer or use cross-chain bridges to obscure the trail.
• Sub-step 2: Deploy Contract: Deploy the exploit contract from a fresh, funded wallet. The transaction will include the compiled bytecode.
• Sub-step 3: Secure Gas: Ensure the wallet has sufficient ETH (e.g., 10-50 ETH) to cover all transaction fees, especially if the exploit involves complex, gas-intensive operations.

Tip: Monitoring services like Flashbots can be used to submit the exploit transaction privately to avoid front-running by other bots.

Detailed Instructions

This is the critical moment. The attacker invokes the primary function in their deployed contract. This transaction will contain a series of low-level calls that manipulate the target contract's state, often within seconds. The goal is to move funds to addresses controlled by the attacker before the network or protocol defenders can react.

• Sub-step 1: Initiate Attack: Call exploitContract.attack(), which interacts with the vulnerable contract at address 0x742d35Cc6634C0532925a3b844Bc9e....
• Sub-step 2: Monitor Mempool: Watch for the transaction's inclusion via a node RPC or block explorer to ensure it isn't stuck.
• Sub-step 3: Confirm Success: Verify the attacker-controlled wallet's balance increase and the target contract's balance drop to zero on Etherscan.

Tip: Successful exploits, like the $600M PolyNetwork hack, often complete in a single block, leaving a very short window for any mitigation.

Detailed Instructions

Post-exploit, the attacker must launder the stolen assets to avoid tracking and potential freezing by centralized exchanges. This involves converting tokens, using mixers, and hopping across multiple blockchains to break the on-chain trail.

• Sub-step 1: Convert to Privacy Coins: Swap stolen ERC-20 tokens for ETH or privacy-focused assets like Monero (XMR) via decentralized exchanges.
• Sub-step 2: Use Mixers: Send funds through mixing services (e.g., Tornado Cash) in standard denominations like 1, 10, or 100 ETH to obscure ownership.
• Sub-step 3: Cross-Chain Bridges: Bridge assets to other chains (e.g., Avalanche, Solana) using protocols like Multichain or Synapse to further complicate tracing.

Tip: Despite these steps, blockchain analysis firms like Chainalysis can often trace fund flows, leading to exchanges blacklisting the attacker's addresses.