The cool side of the blazing crypto ecosystem.
A Web 3.0 newsletter covering the latest news that matters.

What’s in today’s crime cooler:

• Summary of What Happened

• What is the Impact on Users, Businesses, and Funds

• How to be More Secure in the Future

• Final Thoughts

Rodeo Finance, a Leveraged Yield protocol on the Arbitrum Network, has been exploited twice within a week, resulting in a total loss of approximately $3.23 million.

In the first incident, the protocol lost around $1.7 million from its lending pool. The hacker exploited one of Rodeo Finance's oracles, designed for Camelot's Uniswap V2 pools, executing a "sandwich attack" to artificially inflate the price and borrow from the lending pool. However, Rodeo Finance managed to reclaim approximately $810,000 of the stolen funds. In response to the hack, the protocol paused its operations and enlisted multiple auditors to investigate the incident. They are also working with partner organizations to track down and freeze the stolen assets.

In the second exploit, which occurred just a week later, Rodeo Finance lost an additional $1.53 million due to a code vulnerability in its Oracle. The exploiter manipulated the time-weighted average price oracle, which is used to calculate the average price of an asset over a specific time frame. This manipulation allowed the exploiter to borrow a large sum of an asset, artificially deflate the price, buy the same asset at a lower price, return the loan, and make a profit. The exploiter then moved the stolen funds from Arbitrum to Ethereum and used a popular mixer service, Tornado Cash, to obscure the transaction's footprint. The exploiter's wallet address still holds over 374 ETH.

These incidents have significantly impacted Rodeo Finance's total value locked (TVL), which fell from $20 million to below $500, and the price of its native token, which dropped over 53% in 24 hours following the second exploit. Despite these setbacks, Rodeo Finance has expressed its commitment to resolving the matter and is working closely with security auditors to finalize a recovery plan.

Here is what they said on Twitter:

Users:

The users of Rodeo Finance were directly affected by these incidents. They faced potential losses due to the theft of funds from the lending pool. The protocol's operations were temporarily paused, which likely caused inconvenience and uncertainty for users. Furthermore, the drop in the price of Rodeo Finance's native token could have resulted in financial losses for those holding the token.

Businesses:

For Rodeo Finance, these incidents had severe consequences. The protocol's reputation was likely damaged due to the security breaches, which could lead to a loss of trust among its users and potential future investors. The total value locked (TVL) in the protocol fell dramatically from $20 million to below $500, indicating a significant loss of business. The protocol had to invest resources into investigating the hacks, recovering the stolen funds, and implementing measures to prevent future exploits.

Funds:

The financial impact of these incidents was substantial. The protocol lost approximately $3.23 million in total due to the two hacks. Although some of the stolen funds were recovered, a significant amount remains lost. The price of the protocol's native token also dropped over 53% in 24 hours following the second exploit, indicating a significant financial impact on the protocol and its users. The incidents also highlighted the vulnerabilities in DeFi protocols, potentially affecting investor confidence in such platforms and their associated tokens.

Preventing such incidents in the future requires a multi-faceted approach, focusing on enhancing security measures, improving protocol design, and promoting user awareness. Here are some strategies:

1. Regular Audits and Penetration Testing: Regular security audits by reputable firms can help identify potential vulnerabilities before they can be exploited. Penetration testing, where ethical hackers attempt to breach the system, can also uncover weaknesses.

2. Bug Bounty Programs: These programs incentivize ethical hackers to find and report vulnerabilities in exchange for a reward. This can help discover potential exploits before they are used maliciously.

3. Improved Protocol Design: Protocols should be designed with security as a priority. This includes using secure oracles, implementing time locks for sensitive operations, and using mechanisms to prevent manipulation of prices or other key parameters.

4. Multi-Signature Wallets and Keys: Using multi-signature wallets and keys can add an extra layer of security. This requires multiple parties to approve a transaction before it can be executed, reducing the risk of unauthorized actions.

5. User Education: Users should be educated about the risks involved in DeFi and how to minimize them. This includes understanding the importance of not sharing private keys, using secure wallets, and being aware of phishing attempts.

6. Insurance Coverage: Insurance can provide a safety net in case of a hack. DeFi insurance protocols can cover losses incurred due to hacks or exploits.

7. Transparency and Open Source: Keeping the protocol's code open source and transparent allows for community scrutiny, which can help identify and fix potential vulnerabilities.

8. Regular Updates and Patches: Keeping the protocol updated and promptly patching any identified vulnerabilities is crucial. This requires ongoing maintenance and a dedicated security team.

9. Limiting Exposure: Users should avoid putting all their funds into a single protocol and diversify their investments across different platforms to limit exposure.

10. Governance and Community Involvement: A strong governance model that involves the community in decision-making processes can help ensure that security is prioritized and that the protocol is regularly updated to address emerging threats.

Remember, while these strategies can significantly reduce the risk of hacks and exploits, no system can be 100% secure. It's essential to stay informed about the latest security practices and always be vigilant when interacting with DeFi protocols.

Very unfortunate for many investors and people who use Rodeo Finance. Personally I have not used or heard of this DeFi platform but you should always be cautious. These smaller DeFi lending platforms may not have all the security compliance and audits that the biggest platforms have.

Below is a visual representation of a sequence diagram of how the hack occurred:

Share the Crypto Cooler

We can hardly contain our excitement as we grow we want to gear up and unveil a brand-new referral program. We want to hook you up with some cool rewards, including stickers, nifty dad hats, and more.
Stay tuned to be rewarded!

Disclaimer: The information shared in this newsletter is for informational purposes only and should not be considered financial advice. It is crucial to conduct independent research and consult with a financial advisor before making any investment decisions.