{"id":42797,"date":"2024-08-29T18:17:46","date_gmt":"2024-08-29T12:47:46","guid":{"rendered":"https:\/\/www.antiersolutions.com\/?p=38151"},"modified":"2024-08-29T18:17:46","modified_gmt":"2024-08-29T12:47:46","slug":"how-the-euler-finance-hack-occurred-and-why-smart-contract-audit-is-necessary","status":"publish","type":"post","link":"https:\/\/www.antiersolutions.com\/blogs\/how-the-euler-finance-hack-occurred-and-why-smart-contract-audit-is-necessary\/","title":{"rendered":"How the Euler Finance Hack Occurred and Why Smart Contract Audit is Necessary?","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"

Have you heard of a huge flash loan attack that hit a DeFi lending platform, Euler Finance, on 13 March 2023, just recently? It is estimated that $200 million were lost. This proves not only the gaps that could have been associated with the DeFi protocols but also the need for <\/span>smart contract audits<\/a> with even greater thoroughness.<\/span><\/p>\n

Now, let’s speak about the conditions that made the hack possible and the necessity of contacting a <\/span>smart contract audit company for the security of blockchain applications.<\/span><\/p>\n

Understanding Euler Finance<\/strong><\/h3>\n

Euler Finance is an on-custody, permission-less lending protocol through which users can lend and borrow any variety of major cryptocurrencies. Key to the protocol is that when a user deposits assets into the protocol, in return, they receive tokens that represent their rail and debt. This protocol is architected in such a way that while it makes lending and borrowing efficient, it does introduce many complications that create vulnerabilities in the absence of a <\/span>smart contract security audit expert.\u00a0<\/span><\/p>\n

The Mechanics of the Hack<\/strong><\/h3>\n

The attack was carried out using a flash loan, an uncollateralized loan that must be paid back within a single transaction. For this particular incident, a flash loan of around 30 million DAI originated from Aave, one of the most popular decentralized lending systems.<\/span><\/p>\n

Here\u2019s a step-by-step breakdown of how the hack unfolded:<\/span><\/p>\n

    \n
  1. Flash Loan:<\/strong> Attacker called a 30 million DAI flash loan from Aave, which allowed him to borrow such a high value without any collateral.<\/span><\/li>\n
  2. Smart Contract Deployment:<\/strong> The attacker deployed several smart contracts to complete the attack. Among these was the primary contract, the Violator, which perpetrated the attack, and the Liquidator contract to liquidate the account of the Violator.<\/span><\/li>\n
  3. Front-run and Steal:<\/strong> Now, the attacker placed 20 million DAI into Euler Finance and exchanged these standard tokens into eDAI tokens. Unluckily, the donateToReserve function was exposed and did not contain checks that took into account liquidity; therefore, the attacker could have built some method of bypassing coverage of his debt. This gave the attacker a method to donate tokens while not holding debt coverage high enough.<\/span><\/li>\n
  4. Liquidation and Withdrawal:<\/strong> The attacker was able to leverage withdrawals through the health score mechanism meant to maintain solvency in accounts as a conduit for large assets siphoning out of the protocol. This resulted in almost $200 million of a loss of value across a wide spectrum of cryptocurrencies, including staked Ether (stETH), wrapped Bitcoin (wBTC), and USD Coin (USDC).<\/span><\/li>\n<\/ol>\n

    The Aftermath<\/strong><\/h3>\n

    The Euler Finance hack has been a perfect example of why one needs a <\/span>smart contract audit services company.<\/strong> A <\/span>smart contract audit is an extensive review of vulnerabilities, bugs, and potential exploits in the blockchain application code.\u00a0<\/span><\/p>\n

    The attack was carried out in a string of transactions, with the hacker exploiting a bug in the protocol’s liquidation logic. Flash loans enabled an attacker to manipulate artificially the prices of assets and force unauthorized liquidations that siphoned off money from the protocol.<\/span><\/p>\n

    It just goes to point out the vast complexity that many DeFi protocols have accrued, and several risks with the vulnerability of smart contracts. Euler Finance had gone through multiple audits, but this was able to slip through; thus, the need for a periodic and intensive <\/span>smart contract security audit is emphasized.<\/span><\/p>\n

    Why Performing a Smart Contract Audit Is Essential?<\/strong><\/h3>\n