Defrost Finance, a decentralized trading platform that lost $12 million in the days leading up to Christmas, has denied allegations that it subjected its members to a sophisticated exit scam.
The platform reported that it was the victim of a flash loan attack on December 23, which drained user funds through its V2 protocol. A day later, a hacker stole the admin key, leading to a more significant attack on the V1 protocol.
Defrost Finance is sad to announce that our V2 has suffered a hack, with an attacker using a flash loan function to withdraw funds.
The V1 is not affected. We will soon close the V2 UI and investigate further with our tech team.
Updates will be posted on our official channels.
— Defrost Finance 🔺 (@Defrost_Finance) December 24, 2022
Given that an admin key was needed to carry out the attack, observers such as blockchain security companies Peckshield and CertiK, as well as asset management platform DeFiYield have speculated that team members may have been involved in the exit scam.
To refute its involvement, Defrost emphasized two points. First, if they had intended to do a rug pull, they would have done it months ago when the total value locked (TVL) was approaching $200 million. Second, Defrost claimed they would have ceased operations long ago if they had been the perpetrators, but they haven’t.
The platform announced on December 26 that it had managed to retrieve all funds that had been lost in the V1 hack and will soon begin scanning on-chain data to identify the previous owners of various assets in order to return them to their rightful owners.
Defrost stated:
“ As different users had variable proportions of assets and debt, this process might take a little. However, it will be concluded fairly swiftly.”
1/4#Defrost has managed to recover all funds taken during the the V1 hack.
This is how we will refund the investors.
A thread 👇
— Defrost Finance 🔺 (@Defrost_Finance) December 27, 2022
DeFiYield accused Defrost Finance of rug-pulling its users in a blog post on December 27, alleging that the creators of Defrost Finance are the same as those of Phoenix Finance (FinNexus), which lost $7.6 million in May 2021 in what was also believed to be an “inside job.”
DeFiYield tweeted:
“We’ve done an Exclusive On-Chain Investigation on the @Defrost_Finance‘s $12M “Exploit”
We found the connection between Defrost Finance and another project that has Rug Pulled $7M in 2021 – @Phoenix__PHX
They have the same developers.
EXPOSING @Defrost_Finance LIES ”
2/18 How it started:
On December 24th, the World has seen the following tweet by Defrost Finance (screenshot below).
Defrost claimed that their V2 smart contract was exploited, and that attacker used a flash loan to withdraw funds. pic.twitter.com/WxVMnNa4AS
— DeFiYield 🛡️ Web 3 Security (@DefiyieldSec) December 27, 2022
Defrost, however, expressed regret for not being able to provide more information about the incident, as its top priority has been helping users recover their funds.
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