Blockchain security firm CertiK and zk-Sync decentralized exchange (DEX) Merlin are working towards a plan to reimburse users affected by a recent exploit that drained almost $2 million from the latter.
Merlin revealed on Thursday that the incident, which was widely believed to be an exploit, was, in fact, a rug pull by several rogue members of its back-end developer team, who manipulated the protocol’s code to achieve their goal.
CertiK and Merlin to Compensate Victims
Recall that Merlin’s liquidity pool was drained on Wednesday, hours after CertiK audited the protocol’s code. The DEX was conducting the public sale of its native token, MAGE, when an attacker executed the hack.
As CryptoPotato reported, CertiK said an analysis of the event suggested a private key management issue may have led to the incident. The security firm disclosed that it had pointed out a centralization risk in the audit conducted on Monday and recommended that Merlin switches to decentralized mechanisms to avoid single points of key failure.
Upon further analysis, Merlin and CertiK discovered that the hack was an insider job from the protocol’s team. The back-end team implemented a call-action function that gave them power over the contracts and all trading pairs in the liquidity pools.
The developers were also able to manipulate Merlin’s front-end contracts and web host, allowing them to execute several on-chain transactions that drained the public sale.
Our unwavering priority is to return all funds to effected parties and participants on the Merlin platform at the earliest opportunity. To that end, we are working alongside @Certik (Team DOXX by both Prospero & Alatar Recovery Plan) to reimburse all effected users.
— Merlin (@TheMerlinDEX) April 26, 2023
A 20% White Hat Bounty
While Merlin and CertiK are working out a compensation plan, they have also informed relevant authorities about the incident and the whereabouts of the rogue technical team. The back-end team has been traced to Serbia, Europe, and local authorities have been notified.
The protocol has also recruited on-chain analysts to monitor the movement of the funds. The stolen assets have been tracked to two wallets and were still there at the time of writing.
Meanwhile, CertiK has offered the developers a 20% white hat bounty, urging them to accept it to avoid the wrath of the law.
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