DeFi protocol Spiral hacked for 10.7 Ethereum

The DeFi protocol Spiral has been attacked and has lost more than 10.7 Ethereum. The attacker exploited a security vulnerability in which the protocol used the spot price of Uniswap V4 to value collateral, without incorporating safeguards such as TWAP or limits on price changes.

In brief:

• The Spiral protocol loses approximately 10.7 Ethereum due to a price-setting exploit
• The attacker used six different wallets to bypass a security mechanism
• The vulnerability was in the SpiralHookV2.borrow function, which did not have an adequate price protection mechanism

How the attack was carried out

The attacker exploited a flaw in how Spiral determined the value of collateral. Instead of a secure pricing method, the protocol used the current spot price of Uniswap V4, which increased the risk of price manipulation.

The attack worked as follows: the protocol had a guard called noSameBlockSwap that was supposed to prevent attacks within the same block. However, this security mechanism was linked to tx.origin, an Ethereum parameter that indicates the very first sender of a transaction. By deploying six different wallets, the attacker was able to bypass this system and repeatedly borrow funds within the same block against artificially inflated collateral.

Impact and technical details

The attacker first inflated the price by adding large amounts of liquidity to a Uniswap V4 pool, causing the spot price to rise. The hacker then used this manipulated price level to borrow against much more collateral than would normally be allowed. After borrowing, the attacker withdrew the added liquidity again, after which the pool returned to its normal price level.

Security firm SlowMist identified the attacker via address 0x859E69A29244A10800A34eE66919426C02aFa2f0. The attack contract and vulnerable contracts have also been verified and documented on the blockchain.

This incident underscores why many DeFi protocols use Uniswap and other decentralised exchanges with prudent pricing mechanisms. Protocols must have multiple layers of security, including average prices over multiple blocks, so that one-off price pumps cannot be abused.