DeFi Protocol Indexed Finance Gets Exploited For $16 Million

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Even in late 2021, it is not uncommon for DeFi protocols to suffer some form of attack. For Indexed Finance, that attack occurred recently and involved $16 million being stolen from two indices. Although the smart contract has been fixed, it is still a severe warning for those blindly entrusting money to code on a blockchain. 

A Recap of The Indexed Finance Exploit

  • Indexed Finance suffered its first attack since launching in December 2020.

  • The attack saw $16m in funds being stolen from the DEFI5 and CC10 indices.

  • Through a pool rebalancing exploit, the attacker was able to perform multiple smaller attacks against both Indices.

  • Trouble began when the DEFI5 was ready for re-indexing, which occurs once a week. The value of UNI approximated the pool value for SUSHI.

  • Through an exploit, the attacker took $156 million of flash swaps for initialized assets of DEFI5 to purchase UNI from the Indexed Finance pool in chunks.

  • By forcing a minimum balance update on the controller and a low UNI balance in the pool, the pool’s approximated value was calculated at a very low amount.

  • The attacker minted new DEFI5 in chunks through these purchased UNI assets, inflating the pool supply significantly.

  • Moreover, the borrowed SUSHI was used to mint even more DEFI5, after which the DEFI5 were burned for all underlying assets, a  process that was repeated several times.

  • A similar exploit affected Index Finance’s CC10, although someone had done the re-indexing part already.

  • The developers have identified the issue in the smart contract and will modify it accodingly.

  • Affected users have yet to be compensated as no decision has been made to approach this aspect.

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