The Linea Blockchain and its $10M Velocore Hack

By  Pratik June 8, 2024

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Introduction

This past week, the blockchain world saw some major action. Linea, a new-age Ethereum Layer 2 solution from ConsenSys, faced a recent hack where the attacker drained nearly $10 million from its Velocore DEX. The Linea team, in an attempt to mitigate losses, made the decision to halt block production. This move came as a "last resort" to protect users and prevent the hacker from selling a significant amount of tokens. However, this has sparked intense debate within the crypto community, raising concerns about security measures and governance in decentralized systems.

The Velocore Hack

On June 2, 2024, Velocore, a premier decentralized exchange operating on the Linea blockchain, experienced a major security exploit. The hackers targeted vulnerabilities in its "Balancer-style CPMM pool contract" resulting in the unauthorized withdrawal of approximately $6.8 million worth of Ether. The exploit affected volatile pools, while stable pools remained unaffected, allowing users to withdraw funds from these reserves.

To obfuscate the origin of the stolen funds, the attackers converted the various crypto assets into more commonly traded tokens. They then employed a cross-chain bridge protocol called Across Protocol to transfer the stolen assets to the Ethereum mainnet.

In response to the security breach, Linea halted its block production by pausing the sequencer, effectively preventing additional funds from being bridged out by the exploiter. According to Linea, the halt was necessary due to the timing of the incident, as immediate contact with Velocore was not possible. The blockchain has since resumed normal operations, reaffirming its commitment to creating a "permissionless, censorship-resistant environment" in the future.

Community Reaction and Controversy

The decision to halt block production has been met with mixed reactions. On one hand, it prevented further loss of funds and allowed the Velocore team to address the vulnerability. While on the other hand, it has sparked a debate about the principles of decentralization and the implications of such actions on the trust and reliability of blockchain systems. Critics argue that pausing block production undermines the core tenets of blockchain technology, which include immutability and resistance to censorship.

Alex Gluchowski, CEO of Matter Labs, emphasized the importance of decentralizing the sequencer, stating , "Decentralizing the sequencer isn't optional. Every serious L2 stack must race to do first." Declan Fox, Linea's product lead, agreed that decentralization is not an option but stressed that the network is on a "solid path" to decentralizing in a shorter time window than many of its competitors

The Aftermath: Community Response and Recovery Efforts

The Linea community, affected by the hack, has demanded refunds from Velocore. The team is currently working with centralized exchanges (CEXs) to freeze the stolen assets and is planning an on-chain negotiation process. Although the efforts are praiseworthy, this incident has highlighted the slow progress towards decentralization in Ethereum layer-2 solutions and the need for immediate action to address these persistent vulnerabilities.

In response to the hack, Velocore offered a 10% white hat bounty for the return of the remaining funds by June 3, 2024, 08:00 UTC. This incident has prompted a broader discussion about the security measures in place for decentralized exchanges and the potential implications for the future of decentralized finance (DeFi).

Conclusion

The recent events surrounding the Linea blockchain and the Velocore hack have shed light on the vulnerabilities and challenges in the DeFi space. While the decision to pause block production has been controversial, it has also highlighted the critical need for advanced security measures and responsive governance frameworks.

The ongoing discussions within the community are very much needed and could significantly influence the future trajectory of decentralized finance and blockchain governance. As the sector continues to evolve, it's plausible that certain blockchain platforms will emerge as leaders capable of effectively navigating both technical and social challenges. This evolution could pave the way for more secure, resilient, and efficient decentralized financial systems.