Massive 4,090 ETH Hack Appears, and Reason Is Surprising

The cryptocurrency protocol “Jimbo’s Protocol” has reported a loss of 4,090 ETH, equivalent to approximately $7.5 million at the current Ethereum price. This significant breach was not the result of typical hacking strategies, but a flaw within the protocol itself — specifically, a lack of slippage control in liquidity-shifting operations.

To understand this, we must first define slippage. In the world of cryptocurrencies, slippage refers to the difference between the expected price of a trade and the price at which the trade is executed. This discrepancy typically occurs during periods of high volatility when market orders are used, and prices can change rapidly within seconds.

In the case of Jimbo’s Protocol, the issue was not slippage per se but a lack of control over it. This deficiency allowed for the protocol-owned liquidity to be invested into a skewed or imbalanced price range. Essentially, the “hackers” exploited this design flaw, manipulating the liquidity to create an imbalance in the price range, which they then profited from in a reverse swap operation.

It appears today’s @jimbosprotocol hack leads to the 4090 ETH loss (w/ ~$7.5M).

This hack is due to the lack of slippage control of liquidity-shifting operation — such that the protocol-owned liquidity is invested into a skewed/imbalanced price range, which is exploited in… https://t.co/wnQAeksojz pic.twitter.com/TPlqNlvnZD

— PeckShield Inc. (@peckshield) May 28, 2023

The surprising fact about this incident is that it was not an external hack, but rather an exploitation of the system’s inherent weaknesses. It underlines the need for robust, slippage-controlled mechanisms in DeFi protocols to prevent such manipulations. These mechanisms act as safety nets, protecting protocols from falling victim to such exploits.

Interestingly, despite this substantial hack, markets have not shown any significant reaction. One reason for this might be the ever-increasing resilience of cryptocurrency markets to such breaches. Over the past few years, we have seen numerous similar incidents, which have collectively fortified the markets against sudden shocks. It is also possible that investors perceive the hack as an isolated issue within Jimbo’s Protocol, not indicative of broader market instability.

Nonetheless, it serves as a stark reminder to protocol developers about the need for rigorous security measures, including stringent slippage controls, to guard against potential manipulations.