Ethereum dao hack explained
DAOs replace centralized management structures with a techno-democratic approach wherein decisions are voted upon by investor-stakeholders. DAOs are built on top of blockchains often Ethereum and their transactions are visible on the underlying blockchain protocol.
While The DAO was an early iteration of DAO governance, decentralized autonomous models remain highly influential in blockchain-related use, particularly amongst decentralized finance DeFi platforms. After approving funding proposals, stakeholders were meant to be in position to profit from their investments by reaping dividends or benefiting from a token price increased by representation in ownership of successful companies. While programmers attempted to fix the bug, an attacker exploited the vulnerability and began siphoning funds from The DAO.
In the meantime, the Ethereum community debated how to respond to the attack. At only one year old, the promising Ethereum technology and community was faced with a genuine existential threat. The Response to The DAO Hack Initially, Ethereum founder Vitalik Buterin proposed a soft fork of the Ethereum network, adding a snippet of code that would effectively blacklist the attacker and prevent them from moving the stolen funds.
The attacker also said they would take legal action against anyone who attempted to seize the ether. Shortly after, tensions were heightened yet again when the alleged attacker or someone posing as them claimed through an intermediary on The DAO Slack channel that they would attempt to thwart any soft fork by bribing Ethereum miners not to comply.
The bribe comprised a collective reward of one million ether and bitcoin, and it split the Ethereum network in two. A second solution — a hard fork — was proposed and eventually executed after much debate. This was extremely controversial — after all, blockchains are supposed to be immutable and censorship-resistant. It was initially unclear as to whether the fork would be executed.
Well, the source code is in TokenCreation. Basically the attacker is using this to transfer more tokens than they should be able to into their child DAO. How does the DAO decide how many tokens to move? The first thing the attacker needed to do to pave the way for his successful exploit was to have the withdraw function for the DAO, which was vulnerable to the critical recursive send exploit, actually run.
Let's look at what's required to make that happen in code from DAO. Remember that because this is all happening from inside withdrawFor from inside splitDAO, the code updating the balances in splitDAO hasn't run. So the split will send more tokens to the child DAO, and then ask for the reward to be withdrawn again.
And so it goes: Propose a split and wait until the voting period expires. Let the DAO update your balance. Because 7 goes back to 5 , it never actually will Side note: Ethereum's gas mechanics don't save us here. Step 1: Proposing the Split The first step towards all of the above is to simply propose a regular split, as we've mentioned. No matter, it's just a split proposal like any other!
Nobody will look too closely at it, right? Step 2: Getting the Reward As was neatly explained in one of slock. Just use the default function of the reward account! And because they can claim their share of the reward, they can run their default function and reenter back to splitDAO. But do they actually need to include a reward? To me this doesn't make much sense -- why waste the gas in this manner?
I think this is why many people assumed the attacker needed a balance in the reward account to proceed with the attack, something they in fact did not require. The attack works the same way with an empty reward account as with a full one! Let's take a look at the DAO's reward address.
The DAO accounting documentation from Slockit pegs this address as 0xd2e16a20dd7b1ae54fbdc7b0. Check that account's transactions and you see a pattern: pages of. That's one transaction for each recursive call of withdrawRewardFor, which we described above. So in this case there actually was a balance in the rewards account, and the attacker gets to collect some dust.
It's obvious to anyone constructing or analyzing this attack that certain properties of the DAO specifically that any split must be running the same code as the original DAO require an attacker to wait through the creation period of their child DAO 27 days before withdrawing any coins in a malicious split. This gives the community time to respond to a theft, through either a soft fork freezing attacker funds or a hard fork rolling back the compromise entirely.
Any financially motivated attacker who had attempted their exploit on the testnet would have an incentive to ensure profits regardless of a potential rollback or fork by shorting the underlying token. The staggering drop that resulted within minutes of the smart contract that triggered the malicious split provided an excellent profit opportunity, and while there is no proof the attacker took the profit opportunity, we can at least conclude that after all this effort they would have been stupid not to.
In this case, with another user as sole curator, the attacker would have no access to DAO funds. Unfortunately the attacker is a smart guy: there is evidence that the attacker has voted yes on all split proposals that come to term after his own, making sure that he would hold some tokens in the case of any DAO split. Because of a property of the DAO we'll discuss later in the post, these split DAOs are vulnerable to the same emptying attack we're describing here.
All the attacker has to do is sit through the creation period, send some Ether to the reward account, and propose and execute a split by himself away from this new DAO. If he can execute before the curator of this new DAO updates the code to remove the vulnerability, he manages to squash all attempts to get Ether out of the DAO that aren't his own.
Notice by the timestamps here that the attacker did this right around the time he started the malicious split, almost as an afterthought. I see this more as an unnecessary middle finger to the DAO than a financially viable attack: having already emptied virtually the entire DAO, going through this effort to pick up any pennies that might be left on the table is probably an attempt to demoralize holders into inaction. Many have concluded, and I agree, that this hints at the attacker's motivations being a complete destruction of the DAO that goes beyond profit taking.
While none of us know the truth here, I do recommend applying your own judgment. Step 4: Executing the Split So we've painstakingly described all the boring technical aspects of this attack. Let's get to the fun part, the action: executing the malicious split. The account that executed the transactions behind the split is 0xf35e2cc8ededf5b7cca77d.
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