• BadgerDAO has paused its smart contracts after falling victim to an exploit allowing 2,063.37 BTC and counting to be surreptitiously removed from the protocol
  • Initial security audits and members of the DAO’s Discord believe that the exploit came from its web frontend

Another DeFi protocol has fallen victim to an eight-figure hack, as Badger DAO reports that it has noticed “unauthorized withdrawals” from its protocol. 

BadgerDAO initially reported that $10 million had been pilfered, though reports from blockchain security and analytics company PeckShield puts that number closer to $115 million, over 2,063 bitcoins. One unlucky user lost 900 bitcoin

BadgerDAO’s mission, as it describes it, is to “bring Bitcoin to DeFi” by creating various wrapped bitcoin products. 

Unlike many other hacks of DeFi protocols, this one doesn’t appear to be an attack on the protocol itself, but rather the web interface connecting the protocol to the users’ wallets to the protocol. 

On the BadgerDAO Discord, many users complained that when their wallets interacted with BadgerDAO they were hit with requests for additional permissions and then transferred tokens to wallets controlled by the hackers. 

“It looks like a bunch of users had approvals set for the exploit address allowing it to operate on their vault funds and that was exploited,” Badger developer Tritium wrote on Discord. 

Currently, BadgerDAO has decided to pause all smart contracts to prevent further withdrawals as it investigates further. 

BadgerDAO’s governance token BADGER is down sharply on the news.

The founder of BadgerDAO, Chris Spadafora, who goes by the moniker SpadaBoom (with the ‘B’ as a Bitcoin symbol), announced that the smart contracts would remain paused, preventing withdrawals from the protocol.

“Badger has retained data forensics experts Chainalysis to explore the full scale of the incident and authorities in both the US and Canada have been informed and Badger is cooperating fully with external investigations as well as proceeding with its own,” Spadaboom wrote on Discord Thursday evening (ET).

Token holders are responsible for approving changes to the decentralized protocol on Ethereum, but the Badger.com frontend is separate from the project’s Ethereum smart contracts, and the core team retains some administrative powers.

According to Badger Core team member Mitche50, commenting on the BadgerDAO Discord’s “general” channel:

“It looks like an API key for cloudflare was compromised. Through this, the hacker was able to create a script, inject the script into custom routes and serve the frontend with the malicious script injected.”

Cloudflare is a widely used American website infrastructure company that provides content delivery network and helps sites defend against denial-of-service attacks.

Among the unresolved questions are, how long has this exploit been operative, and why did it go undetected? Mitche50 told Blockworks, “the investigation of exactly what happened is still ongoing.”

It’s also unclear, whether the affected users will be able to be compensated for losses by the DAO, or by insurance protocol Nexus Mutual, which offers insurance on BadgerDAO, currently at a rate of 2.6% annually.

The insurers’ term and conditions note that insurance covers only “contract bugs, economic attacks, including oracle failures [and] governance attacks,” and Nexus’ own governance may determine the present exploit is outside the scope of coverage.

The Nexus team issued a statement in their Discord’s “claims-discussions” channel indicating that BadgerDAO cover holders may be out of luck in this case:

“If this is confirmed as a frontend attack, BadgerDAO’s smart contracts were not impacted and this would not be a covered event.

Frontend attacks are not covered per section 9 of the Protocol Cover wording.”

Even if Nexus were to include the hack as a covered event, as of today, less than $14.25 million in coverage was purchased, according to nexustracker.io.

BadgerDAO launched its first launched yield-generating vaults based on wrapped bitcoin on Ethereum, in December 2020. The project quickly moved to community-based governance through the distribution of the BADGER token, which has been used to vote on over 70 improvements to the protocol since launch.

BadgerDAO’s total value locked peaked in February at $2.32 billion, but the protocol still has $1.1 billion in assets, according to DeFi Llama.

While this hack is significant, it pales in comparison to some of the largest successful exploits that have occurred against DeFi protocols this year. For instancce, in August, hackers made off with nearly $600 million after they exploited bugs in the Poly Network.

This story was updated on December 2, 2021 at 12:10 pm ET with a statement from Nexus Mutual. The headline was updated to clarify that funds were not drained from the BadgerDAO protocol itself, but directly from users of the Badger.com frontend.

This story was updated on December 3, 2021 at 3:30 AM to include a comment from BadgerDAO founder Chris Spadafora.

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  • Blockworks
    Sam Reynolds is a Taipei-based reporter, covering digital assets and regulation throughout Asia. Before joining Blockworks he was an editor at Forkast News and an analyst with IDC.
  • Macauley was an editor and content creator in the professional chess world for 14 years, prior to joining Blockworks. At Bucerius Law School (Master in Law and Business, 2020) he researched stablecoins, decentralized finance and central bank digital currencies. He also holds an MA in Film Studies; film credits include Associate Producer of the 2016 Netflix feature documentary, "Magnus" about World Chess Champion Magnus Carlsen. He is based in Germany. Contact Macauley via email at [email protected] or on Twitter @yeluacaM