Conclusion

 Multi-signature wallets, also referred to as multisig wallets, are standardized smart contracts that consolidate multiple accounts and private keys into a single wallet for managing crypto assets. The main goal of a multisig wallet is to create redundancy by requiring multiple private key signatures to authorize a transaction, similar to other crypto wallet solutions. Smart wallets utilize a group of exclusive key pairs and wallet owners can set the minimum number of signatures required for authorizing any transaction, allowing them to distribute the keys associated with the primary wallet to other parties and decentralize the responsibility of managing funds. As a result, multiple parties must sign off on a transaction before it is validated, providing an extra layer of security for the wallet and the crypto assets associated with it. This mechanism also prevents malicious actors from accessing funds if one of the accounts private keys is lost or stolen.

 To learn more about the risks associated with traditional crypto wallets and to get a comprehensive technical analysis of the benefits of using a multisig wallet, please check out our article, The Risk and Future of Crypto Wallets. In this article, we compare MPC Wallet and Smart Wallets and explain which one is preferable from a security perspective. As crypto wallets are a critical component in a blockchain system, it is crucial to establish robust policies, guidelines, and best practices to safeguard and benefit the entire community.

 That's why we've created a guide on how to migrate from a conventional wallet to a multisig solution. Since crypto wallets are a single point of failure, we recommend transitioning to smart wallets to reduce the impact if one of the private keys is intentionally or accidentally leaked. Additionally, this significantly diminishes the likelihood of former employees attacking the protocol in case of an inside job.

 This guide outlines the process of migrating your wallets to a secure multisig wallet using Gnosis Safe and Trust Wallet. We provide step-by-step instructions for you and your team to perform a straightforward migration by transferring smart contract ownership to the newly created multi-sig wallet.

• To create an account on Trust Wallet. Please refer to this guide .
• For a detailed explanation of the usage of an upgradable contract, please refer to Openzeppelin Documentation.
• Technical teams should be able to choose their favorite web3 development and testing framework to properly create the transactions required to perform the contract migration. Also, they should be able to perform the proper setup for testnet and mainnet.

 We highly recommend that all projects managing significant amounts of crypto assets, such as project treasuries, migrate their funds to new smart wallets. Additionally, we strongly advise projects with simple crypto wallets that have elevated privileges in their decentralized applications to switch to a multisig solution. If your project has any roles with elevated privileges in its smart contracts, it is essential to migrate all the wallets from classic to multisig setups. This guide provides detailed instructions on how to use Gnosis Safe and Trust Wallet to manage the Safe. However, before considering migrating your smart contracts to a multisig solution, ensure that your project complies with the following requirements:

 Make sure your smart contracts have a mechanism to change the addresses with elevated roles. For instance, if your smart contract is using the Ownable interface, one might be able to use the contract function transferOwnership to transfer the ownership between addresses - in this case from an External Owned Address (EOA) to the multisig wallet. If your contract does not have this capability to change a role address, we suggest adding such capability to a new version of your smart contract and upgrading it. Note: to upgrade one’s smart contract, one needs to use a proxy smart contract. Create your Multisig wallet using Gnosis Safe. Create your free Trust Wallet account, on mobile or desktop.

1. Creation of a Gnosis Safe.
2. Prepare smart contract migration in the test phase (testnet).
3. Perform and validate smart contract migration on production (mainnet).

1. Start the creation process

To create a new Gnosis safe multi-wallet, connect to their official website and select the option to create a new Safe.



Figure 2: Gnosis Safe safe creation process


2. Use Wallet Connect

To connect their multisig wallet with Trust Wallet, select the WalletConnect plugin.



Figure 3: Connecting Trust Wallet via WalletConnect


3. Connect With Trust Wallet

Open Trust Wallet with the device of your choice. Trust Wallet exists for mobile android, iOS, Web plugins's and desktop platforms.

 To associate your wallet with the multisig one, use your favorite platform and either scan the QR code that appears on your screen with your smartphone or upload the QR code using the associate feature in the app. Make sure to choose the Trust Wallet with enough funds to pay for the Transaction. In our case, the multisig creation cost only 0.31$.


Figure 4: Wallet Connect QR code connection.


4. Associate the wallets via QR code identification.

 After scanning the QR code with the Trust Wallet application, the Trust Wallet BNB Smart Chain address becomes available on the right top corner of the following page.

5. Setup the multisig wallet details

 Choose a multisig wallet name that is displayed in the Gnosis Safe web app. Finally, make sure you select the BNB Smart Chain network.



Figure 5: Safe wallet setup for BNB Smart Chain, connected to one’s Trust Wallet account.


6. Setup the wallets and threshold.

Click Next and add the other wallet addresses of the wallets used to validate your transactions.

 For relevant crypto wallets, we recommend at least 3 signatures. Also, we recommend using a threshold of at least 50% of the total number of associated wallets. The more keys a project manages the larger surface of the attack and the higher the probability of mismanaging them or having them stolen.

 Such a recommendation comes after the incident with Harmony Horizon Bridge had 2 out of 5 private keys stolen and also raised a concern about how to securely manage private keys on a validator node… But that's a discussion for another time.



Figure 6: Setup of underlying wallets associated with the multisig wallet.


7. Review the final setup.

The next page displays the summary of the Wallet setup.



Figure 7: Multi Sig creation Summary.


8. Validate the multisig creation from your TrustWallet app.

 When clicking next, your Gnosis requests the confirmation and the signature from your first and main wallet. In the meantime, the screen looks like this:



Figure 8: Wallet creation awaiting confirmation.



This is the message you receives in your Trust Wallet application:


Figure 9: Trust Wallet mobile app view on multisig wallet creation approval.



 Approving the transaction pays the required fees for Gnosis to deploy the multisig smart contract on the chain. Once the transaction is approved and paid, the Gnosis web app should change to



Figure 10: Successful creation of the smart wallet.



 Finally, you can see your multi-wallet created in the Safe. You find the following page with your multisig wallet address. This is the new 0x address you should use when migrating your contracts.



Figure 11: Gnosis Safe account with the newly created multi-signature wallet.


9. Managing Gnosis multisig wallet.

 After the creation, it is still possible to perform changes in wallet composition. it is possible to manage (add, remove) the wallets associated with the multisig one as well as change the threshold number for validating transactions.

 For this reason, access to the Gnosis Safe app should be very limited. Never leave your notebook unlocked and don’t use password-saving features in web browsers. Make sure to have a clear change management process for performing this kind of change.



Figure 12: Gnosis Safe multisig settings enabling multisig wallet management.

 Before performing the migration directly on the main net. Projects should always try to perform the migration in the BNB smart chain test chain. However, it is possible your team already has internal technical guidelines or processes regarding such migration. Make sure to check with your team lead before moving forward.

 Even if Trust wallet and Gnosis Safe aren’t (yet) available in BNB smart chain testnet, it is important to test the transaction in the testnet and validate that your transaction has the expected results. Transferring the ownership of a smart contract to an address you don’t own can have serious consequences. You would not only make you lose control of the smart contract and its associated funds but it would also make you lose ownership of all the smart contracts that the first smart contract owned.

1 - Load the target smart contract in BNB smart chain Testnet using Hardhat or Truffle

2 - Execute the transaction to change the address of the privileged role. For instance, using the transferOwnership method for contracts relying on the Ownable smart contract.

 Using the following brownie script One can change the ownership of a dummy contract that uses Ownable interface. It only requires us to use the transferOwnership capabilities.

3 - After executing the transaction, make sure that the address has changed according to your expectation. Either check using the testing frameworks of the respective framework you are using. Chai for Hardhat or Mocha for Truffle. The result is also available in BNB testnet chain explorer: https://testnet.bscscan.com/

 Note: the best practices would require the project teams to use the same tech in the test phase - Gnosis Safe and Trust Wallet but they are not available in Test net. Therefore feel free to use other wallet solutions compatible with BNB smart chain testnet such as Metamask.

 Note 2: One might feel comfortable using the dev tools forking mechanism to perform the test locally and validate that the transaction has the expected results. However, for larger projects, small changes can have a considerable impact on their other smart contracts. Also, other decentralized applications might depend on them. Therefore it is preferable to perform such validation in a long-lasting environment such as the actual Blockchain Testnet environment. Also, running all integration tests might be required to confirm no collateral issues.

Now it is time to perform the previous steps on mainnet. Make sure that your wallet has enough funds to perform the change in the smart contract.

 Crypto wallets are a piece of software used to manage and transfer crypto assets. But different from traditional wallets, no crypto assets are stored in them. Crypto wallets, however, are composed of a public key that is associated with the wallet's public address used to send someone crypto assets. and, private keys, which are necessary to access and manage the associated assets. Crypto assets stay on chain, their smart contract state changes to reflect the changing of owners.

 Crypto wallets are the first component a new user has to start learning. And they are fundamental for anyone wanting to interact with crypto assets, decentralized applications (Dapps) - in Decentralized Finance, Non-Fungible Tokens, Decentralized Autonomous Organizations, etc.

 Even if under the hood, crypto wallets rely on the usage of secure asymmetric cryptographic keys, managing such keys has always been a security challenge in the IT industry. Over the years, asymmetric keys have been used to secure communications between parties, by ensuring message confidentiality and are heavily used to secure internet communications between browsers and servers, with the famous HTTPS standard.

 Now, cryptographic keys have the challenge of securing crypto assets. This is a completely new use case that presents more risks than using public key infrastructure (PKI) to secure messages between parties over the internet. The financial impacts cannot be compared. Instead of being stored securely in Hardware Security Module (HSM), managed by a Key Management System secured by cloud providers with years of experience and a team of experts, crypto wallets can now be stored in a browser plugin, in a web app, mobile app or in a desktop app. Lot of relevant characteristics exist for crypto wallets: are they hot wallets, cold wallets, paper wallets, or hardware wallets? Do they implement hierarchical deterministic standards, are they blockchain-specific, multi-chain? Are they self-custody or 3rd party custody? With all these questions, arise security concerns that we are not addressing in the article.

 Mismanaging crypto private keys has been a common cause of loss of funds for investors and a reason for Dapps to be hacked. In the long run, this becomes a major problem for wide crypto adoption. Especially when compared with today's banking system security and user experience.

 So far, the Web3 industry has been getting inspiration from the IT industry's best practices, when considering the public key infrastructure. However, is it enough? Should the Web3 industry create new standards dedicated to such use cases?

 However, the usage of public keys to managing assets associated with a crypto wallet is unfortunately risky. Indeed, the seed phrase and the private keys become a central security element that can put all the funds associated at risk. In this article, we are further evaluating the risks associated with the loss or the theft/leak of private keys.

  If a private key or a seed phrase is lost, users are not able to access their crypto assets. According to Chainalysis, 20% or $140 billion dollars of all bitcoins are lost. Many stories of users that lost their wallet password, or the hard drive containing the wallets, seed phrases, and hardware wallets. Once keys are lost, by design, for asymmetric cryptographic keys to be secure, it is impossible to regenerate the private key. Therefore, funds are lost forever.

 Similarly, if these sensitive pieces of information are stolen, malicious actors get full control of one's assets. The most common and most effective type of attacks in the crypto industry is the usage of social engineering attacks, phishing and scams are still the most profitable ways to steal crypto assets because they are single and rapid to be put into place, one only need to build a fake website pretending to be real Web3 projects, or fake wallet application that steal the data one inadvertently shares with them. In many cases, such malicious applications request seed phrases or private keys, which should never be shared - only if one migrates their wallet’s private keys to another wallet provider. To summarize, as a user or investor, it just requires a small amount of inattention for one to click a malicious link and interact with the underlying application for them to lose part of all of their crypto assets.

 For projects, it becomes a real problem to manage a considerable amount of crypto assets. The project is only as secure as their less secure link. Not only are they susceptible to phishing attacks, but also, to hacks and sometimes internal jobs or an employee who went rogue that could be covered as hacks.

 Note: If one discovers, their private keys or seed phrases have been compromised, they should move any remaining assets to a new safe wallet as soon as possible!

 This is why we consider crypto wallets a single point of failure. A single point of failure is a part of a system that, if it fails, causes the entire system (Decentralized application or wallet) to fail. It is a critical component or a bottleneck that, if it becomes unavailable, causes the system to be unavailable as well. It is important to identify and mitigate single points of failure in order to increase the reliability and availability of a system.

 In a Public Key Infrastructure (PKI) system, a single point of failure can exist if the private key associated with a particular public key is lost or compromised.

 So let’s consider the classic dilemma in the web3 ecosystem: “Not your crypto, not your coins” - the dilemma between self-custody such as hardware wallets, and third-party custody, such as in exchanges. On the one hand, one should take full ownership of managing their crypto wallets, using, storing, and securing them on their own. They would be subjected to the existing risk of losing or mismanaging them. On the other hand, some users would rather delegate the management of their crypto wallet to a third party that is specialized in the matter. This is a valid debate.

 But, many solutions are in place to address the single point of failure problem and enable a more secure self-custody experience for users and web3 projects. So let’s discover the solutions.

 To mitigate the risks of a single point of failure in PKI, over the years organizations have created securities policies and best practices gathered in security frameworks such as the ISO/IEC 27099. In such a framework, some of the guidelines suggest the implementation of robust key management protocols in combination with HSMs, as well as regular testing and monitoring of these systems for vulnerabilities. This includes implementing measures such as backups and redundant solutions to ensure that the system remains functional in the event of a key management failure, at the software and hardware level.

 However, the crypto space has changed the way we use public key infrastructure. Now, the new practice is to use it for managing crypto assets. And PKI's traditional policies and procedures did not take into account the usage of such mechanisms for crypto asset management. The web3 industry had to develop solutions for this new use case of asymmetric keys being used as wallets.

 Thanks to cryptographic techniques such as signature verification, multi-party computing (MPC), and smart contracts technology, two new solutions are being considered the future of crypto wallets because of their ease of use, flexibility, security, control, compatibility with current existing solutions while addressing the problems of a single point of failure. On the one hand, there are the Multi-party Computation Wallets and the Smart Wallets, also known as multi-signature (multisig) wallets.

 Such particularity makes an MPC wallet a tool for creating a shared crypto account, with family members or with your business partners. MPC wallets help in introducing trust when required to manage crypto assets together.

 MPC wallets are still in their early days, mainly because (secure) multi-party computation is still an evolving field in cryptographic and should still evolve in the next few years with great new techniques.

Here are some of the MPC advantages:

• Off-chain recovery.
• Chain agnostic.
• No gas overhead.
• No need for change in Dapp for integration.

Some of the drawbacks are:

• Early stage technology, libraries implementations, which is not great from a security point of view because they can have undetected vulnerabilities.
• Immutability and lack of redundancy - once created, one cannot change the signers of the associated wallets. In case one loses their wallet, all the funds stored in the MPC will stay blocked.
• All wallets associated with it have to sign. There is no m-over-n signature architecture.

Smart Wallets​

 Secondly, smart (contract) wallets or multisig wallets have been used and battle-tested for longer. Indeed, they are smart contracts deployed on chains and publicly available for anyone to verify. With smart wallets, similarly to MPC wallets, it is possible for a group of individuals to manage together crypto assets associated with the main smart wallet.

 Multisig wallet owners are able to set up the minimum number of signatures required for the wallet to validate and authorize transactions. This allows them to distribute the keys associated with the main wallet account to other parties, decentralizing the responsibility of managing the funds of a project and creating redundancy.

 Practically speaking, to authorize a transaction multiple parties have to read and validate the transaction before it can be taken into account. Thanks to this mechanism, if one of the private keys is lost or stolen, a malicious actor will not be able to access the funds without the other wallet owners. And they are notified someone is performing a suspicious transaction that can be confirmed directly with other key managers. Such a mechanism provides an additional layer of security for the wallet and the crypto assets it holds.

 Multisig wallets are important for individual users who want to keep ownership of their crypto assets. This helps solve the problem of lost hard drives where crypto wallets or seed phrases were stored. If one gets lost, they still can manage the funds and reconfigure the multisig and remove the lost key and add a new one.

 Additionally, multisig wallets can provide an additional layer of security for organizations or groups such as DAO that hold large amounts of crypto assets. By requiring multiple signatures for transactions, multisig wallets can help to prevent unauthorized access or misuse of the funds. One of the main actors that can benefit from multisig wallets is the web3 projects. In recent history, many hacks such as The AscenDex hack as well as the Ankr protocol hack happened because of leaked/stolen private keys. These two projects suffered major financial losses severely impacting not only the project financials but their partners and the trust placed in them by the users, investors, and the community. Multi-sig could become a new standard.

 Multi sig has also a very interesting added value. From the perspective of web3 projects and protocols: The increasing number of smart contracts in a decentralized application and the increasing complexity of their architecture and interactions, it becomes fundamental to provide transparency and visibility on key performance indicators such as the usage of a secure crypto wallet. They fulfill two main roles: managing crypto assets, but also performing important actions in decentralized applications such as updating the smart contract, pausing a protocol, changing the fees, etc.

 Such information is relevant not only for web3 projects' internal security and monitoring but also to increase trust between them and business partners, customers and investors. Since the blockchain is a single source of truth, all the stakeholders can easily verify the security measure on the chain,

Smart wallets are quite versatile, enabling more features, and here are a few of them:

• Timelock - prevent spending before a certain date.
• Spending limits.
• Mutability, add and remove keys or signers after the wallet is set up.
• Gas abstractions and pay for fees with other tokens than network tokens.
• Transaction batching.

Some of the drawbacks are:

• The overhead for the multi-wallet creation is about 30-40.000 gas and an additional 2.000 gas on the subsequent ones.
• Requires Dapp adoption of the EIP 1271 standard.

 MPC and Smart Wallets are the future technologies for crypto wallets even if MPC and its cryptographic technologies are still being developed and standardized. Multisig, on the other hand, has been around for longer, and battle-tested and even hacked with the Parity Multisig Hack which made projects put more effort into smart wallet security. Both types of wallets create redundancy to prevent the mismanagement of funds by one user.

 Even if MPC wallets display a simpler and off-chain process for wallet creation and recovery, being a little cheaper to use and more compatible with decentralized applications, they lack flexibility once they are created. Losing any of the keys required to sign a transaction prevents the parties from accessing the wallet's funds. Smart wallets on the other hand are more flexible, users can be added or removed from the multisig wallet, and keys can be rotated, which is important in case of a security breach or a lost key. Finally, because they are smart contracts, they can implement very different functional features such as paying limits, lack of funds, and others.

 We prefer Multi-signature wallets over other options such as multi-party computation wallets because the latter cannot be easily identified nor audited on-chain. Any project user, business partner, or investor can verify on the chain they are using security best practices to reduce the risks associated with a compromised private key be it an internal job or an external hack, it just makes the whole system more redundant and resilient.

This report focuses on security events that happened on BSC in 2022, analyzing the type of projects targeted and sharing the common attack techniques used in 2022, with respect to the financial loss of the incidents.

This report also examines the trends on BSC from 2020 to 2022 to help give readers a better understanding of how the space has grown. Lastly, this report shares some of the products we at Hashdit have developed, and what risks can be covered by the capabilities that Hashdit have/are building.

Tl;DR​

Security incidents on BSC have risen since 2020. In 2022 alone, nearly $1.05 billion on BSC were lost to malicious actors, where 80% was due to hacks.

In total, there were 282 security incidents, an average of roughly 23 incidents per month. Out of which, 62% were scams / rugpulls.

Disclaimer​

The financial data provided here is accurate based on our own monitoring system and based on the $USD amount of the cryptocurrency involved at the time of the incident. Due to the fluctuating price nature of cryptocurrencies, the total amount loss might differ with the current token valuations.

BSC Growth​

This year has been a year of building and growth on BSC. Despite the general cryptocurrency bear market and black swan events like Luna and FTX, BSC has continued to reach new milestones and surpass expectations.

Here is a list of some of BSC’s achievements in 2022: [Refer to the blog released by BNBChain for more information]

• $1 billion growth fund
• AvengerDAO Launch
• Implement Liquidity Staking on BSC and Binance Account-Based (BAB) tokens
• OpenSea incorporates BSC
• zkBNB launched on Testnet
• Unique addresses crossed 234 million. Source: BscScan

Figure 1: Number of BNB Smart Chain unique addresses over the year 2022

• Peak TVL - USD 16.25b on Jan 3. TVL trend as per screenshot. Source: Defillama

Figure 2: Total Value Locked in the BNB Smart chain ecosystem over the year 2022

• Transactions

  • Peak Txs: 9.78 million txs on 13th May
  • Avg Daily txs since 01 Jan: 4.34 million txs
  • More than 3.7 billion txs on BSC

• Active Wallet Addresses (DAU)

  • Peak Daily Active Wallets (DAU): 2.16 million DAU on 12th Oct
  • Avg Daily AUs since 01 Jan: 968k DAU ( compared to 740k DAU in 2021)
    • Stabilization of daily active users, which may suggest a foundational user base of an average of ~1 million per day
  • Currently ranked no. 1 compared to other chains in terms of DAU

• Number of Decentralized Applications (DApps)

  • ~1200 active on BSC

BSC Year-over-Year (YoY)​

The on-chain metrics can signal the growing adoption of the BNB Smart Chain as the preferred chain to use and build by investors and developers respectively. However, due to BSC’s decentralization nature and its fast growth to more than 1200 DApps, more bad actors have been attracted to the space as well. As such, security incidents have generally been on a rising trend.

This section aims to describe the security incidents YoY from 2020 to 2022.

General​

According to our statistics, in 2022, there were 282 security incidents on BSC which have increased by 228% YoY from 2021. In 2021, there were 86 security incidents, a 760% increase from 2020.

Figure 3: Number of incidents on the BNB Smart Chain over the last 3 years

Financial losses have also increased from 2020 to 2022, with damages totalling $1.81 billion over the past 3 years, as seen from the chart below. The YoY increase from 2020 to 2021 is 61,221%, while the YoY increase from 2021 to 2022 is 37%, a large decline in YoY percentage.

Figure 4: Total amount stolen funds in dollars in the BNB Smart Chain over the last 3 years

By analyzing the ratio of the total amount of stolen funds to the total number of incidents, we observed that the average of stolen funds per incident has decreased.

Indeed, in 2021, the average of stolen funds per incident was calculated to be $8.9m. In contrast, in 2022, this value dropped to just $3.7m - even when there were several considerable events that represent almost half of the stolen funds. This shows that the number of security exploits with high financial impact is decreasing. Such decrease could be explained by the fact that projects with important funds are better secured and are more battle-tested. As such, malicious actors seem to be focusing their efforts on projects with more modest funds, concluding in lesser value exploits.

This pie chart shows a better understanding of the financial losses over the year with 2022 accounting for 57.84% of the total financial loss across, 2021 being 42.10% and 2020 with a mere 0.07%.

Figure 5: Financial losses in % over the last 3 years

Type of attack vectors​

According to our statistics, this is the breakdown of the general attack vectors from 2020 - 2022.

Figure 6: Number of incidents per attack vector over the last 3 years

It can be seen that crypto scams (in green) are a growing concern on the BSC, with 167 in 2022, a 328% increase YoY. Also, there were 2 counts of improper management incidents in 2022, which were never accounted for previously. This seems to suggest that project parties might not be following the best practices in securing user funds. When managing critical components such as team wallets’ private keys, it is important to use a secure management system.

Do stay tuned to our blogs if you are interested in best practice guides for securing your Web3 project.

Type of projects​

This chart represents the type of projects that were exploited since 2020.

Figure 7: Security Incidents per type of project over the last 3 years

It is clear that DeFi projects are still the main targets for crypto hackers, with 208 in 2022, a 147% increase from 2021.

Bridge and GameFi projects were the only other projects which encountered security incidents in 2021, besides DeFi projects. In total, 9 Bridge and 19 GameFi projects were exploited, a 800% and 1800% increase respectively from 2021.

With the expansion of the BSC ecosystem, other categories of projects came into the limelight such as ExerciseFi and SocialFi, which did not exist back in 2021. Some of these projects were victims of hacks as well.

2022 in focus​

General​

In total, nearly $1.05 billion were lost to security incidents on BSC. By observing the monthly chart below, the months with the top amount loss were October, January followed by June.

Figure 8: Amount of stolen funds in dollars per month in 2022

In those months, the main contributing incidents were (1) BSC token hub exploit, (2) Qubit exploit, and lastly the (3) EvoDefi bridge mismanagement incident.

Interestingly, when removing these 3 outlier incidents from the chart, the total financial loss drops down to just $346.9m, a staggering 67% drop or one-third of total amount loss of 2022. Also, the average of stolen funds per incident falls to $1.2m, from the $3.7m value shared earlier in the report.

Figure 9: Amount of stolen funds in dollars excluding the 3 largest incidents

This chart is closely correlated to the number of security incidents monthly in 2022.

Figure 10: Number of different project impacted by exploits

For example, the highest number of security incidents took place in October which is in line with the highest amount of loss.

However, months that have a higher number of security incidents might have a low amount of loss too. For example, even though August has 29 security incidents which is above the monthly average (23), the financial loss for that month is only $8m which is the 2nd lowest throughout the year. Such data reinforces the fact that we are seeing more incidents with lesser financial impact.

Type of attack vectors​

Out of the 282 security incidents, crypto scams are the most common on the BNB Chain as shown below, 62.06% of security incidents are crypto scams, followed by 37.23% being hacks and 0.71% being improper management such as mismanagement of private keys.

Figure 11: Proportion of different type of exploits

However, it is interesting to note that even when the number of scams are nearly double of hacks, the financial impact of scams are less significant than the ones related to the hacks. The total financial loss of scams ($190m) is less than half of the loss to hacks ($803m), as shown below in Figure 12.

Figure 12: Financial impact measured in dollars comparing different types of incidents

For further analysis of the specific attack vectors, this chart displays this against the financial loss in 2022.

Figure 13: Proportion of the funds lost comparing the different type of vulnerabilities

32.93% attributes to the BSC token hub exploit incident where there was a low level vulnerability, specifically an IAVL tree related verification bug. The 2nd largest contributor was Business Logic Vulnerabilities within smart contracts deployed on BSC, accounting for 29.45%.

It is notable here that “low-level” scams like Rugpull and Ponzi, even though they are the most common, do not take up much of the proportion as seen in the pie chart.

Type of projects​

When focusing on the project type vs financial loss, without surprise, 60.38% of financial loss are attributed to Bridge projects. This is because cross-chain bridges generally lock large amounts of crypto assets on one chain to mint collateralized assets on the destination chain. Hackers took notice of this trend and targeted vulnerabilities within these cross-chain bridge smart contracts.

The 2nd most project type targeted was DeFi projects at 37.06%, followed by GameFi and Metaverse projects at 1.22% and 1.08% respectively.

Figure 14: Proportion of funds lost comparing the type of project

Top 10 incidents in 2022​

The following were the top 10 security incidents in terms of financial loss in 2022.

Figure 15: Top exploits measured in dollars in 2022 on the BNB Smart Chain

Top 10 incidents in 2022​

BSC Token Hub exploit - $572 Million Loss​

On 6th October 2022, BSC Token hub, a bridge between the BNB Beacon Chain and the BNB Smart Chain, was exploited by an attacker resulting in the unauthorized transfer of 2M BNB.

Root cause analysis confirmed a flaw in the verification algorithm implementation developed by Cosmos, and incorporated by BSC into their contract’s proof verification process. Essentially, there was a bug in the proof verification which allowed the attacker to forge arbitrary messages and include them in a block that wouldn’t be verified. Fortunately, the attacker here only forged two messages, so the damage could have been far worse.

QubitFinance - $80 Million Loss​

On 27th Jan 2022, the Qubit protocol was exploited, resulting in almost $80M loss. Qubit Bridge is essentially a platform for users to collateralize their ETH on the Ethereum chain without moving assets to BSC. The incident was due to a flawed minting functionality of qXETH on BSC where the tokens were later used for borrowing assets via Qubit lending.

Root cause analysis was that a legacy function (deposit) remained in the Qbridge Handler contract after it was replaced by a newer function (depositETH).

The legacy function did not check the amount of tokens, in this case WETH, supposed to be transferred in. As a result, the attacker was able to pass in the 0x0 address to fake a deposit event.

EvoDefi - $50 Million Loss​

The team behind EVODeFi, a cross-chain platform offering a set of crypto products on BNB Smart Chain (BSC) & Polygon, invested users’ funds on Terra’s Anchor Protocol in order to fund their cross-platform bridge as well as sustain high APR on ValleySwap, the second project owned by the team. In a further effort to boost APR on ValleySwap, the team minted unbacked USDT, causing funds on Oasis Emerald to be unbacked, the network ValleySwap was based on.

However, due to the collapse of Terra’s ecosystem, EVODeFi lost their investment in Anchor Protocol, their unbacked USDT became worthless, and they had no liquidity to continue operations.

Thus, EVODeFi was forced to close their bridge, trapping millions of dollars worth of users’ funds on Oasis, with no way to move funds out of Oasis Network without losing a majority of their fund’s value.

StableFund - $23 Million Loss​

StableFund was identified to be a Ponzi scheme. The project team can get a risk-free 3% handling fee, while it was marketed that the participants can get 1.5% rewards every day, and they can choose to get their principal back after 4 weeks.

In reality, the project does not have any profit-making method, to sustain the high 1.5% daily yield. The rewards of the first entrants need to be paid by the principal of the latter entrants, this is the standard Ponzi feature.

The project started from 2022-06-27, where >13k addresses have participated, and more than $23 million have been invested into the pools so far.

Elephant Money - $22 Million Loss​

On 13th April 2022, Elephant Money was exploited, resulting in the loss of 27,416.46 BNB. The attacker first used WBNB to buy a large amount of ELEPHANT, and then used BUSD to mint the TRUNK stablecoin. During the minting process, the Elephant contract will convert BUSD to WBNB and then back to ELEPHANT to drive up the ELEPHANT price.

The root cause was that the vulnerable contract relied on the instantaneous price of ELEPHANT-WBNB liquidity pool. Since, the value of ELEPHANT was artificially inflated, the attacker could mint more TRUNK stablecoin, which he can redeem back for WBNB and BUSD.

Transit Finance - $21 Million Loss​

On 1st October 2022, Transit Finance / Swap (a cross-chain protocol) was exploited for > $21m. Essentially, this attack targeted the users directly via a vulnerability in the use of the transferFrom() function. Any tokens approved for trading on Transit Swap could be transferred directly from users’ wallets to the unknown exploiter’s address.

Thankfully, > $18.9m was returned back to Transit Finance on both chains (ETH and BNB).

The root cause was that there was a lack of validation for input parameters. The hacker parsed in the Permissions management contract to the vulnerable contract and called the claimTokens function to do a transferFrom from users that have unlimited approval to this contract.

ANKR / Helio - $20 Million Loss​

On 2nd December 2022, Ankr protocol was exploited for around $5m, but what was surprising was 1 of their products, Helio, was impacted as well for > $15m, bringing the total damage to > $20m. Essentially, the root cause was that the private key of the Ankr deployer was compromised. According to the team, it was an insider attack that stole the private key. As such, the exploiter introduced a backdoor function and minted a large amount of unbacked aBNBc tokens to drain the liquidity pool for BNB.

Helio was impacted because one of the ways to provide collateral on their platform was aBNBc. Since the value of aBNBc has plummeted, many users seized the opportunity to purchase it at a valuation below market value. At the same time, Helio uses Chainlink to reflect the actual value of BNB at that point of time. As such, these users had a higher collateral value than expected where they could borrow large amounts of $HAY (platform’s stablecoin) and not pay back the debt.

Racoon Network and Freedom Protocol - $20 Million Loss​

On 20th July 2022, Racoon Network and Freedom Protocol performed a rugpull. More than 20 million USDT were transferred to the same EOA address, suggesting that they belong to the same party. 10% of the funds were transferred from Raccoon Network, while 90% of the funds were transferred from Freedom Protocol.

For Raccoon Network, the loophole is in the unverified token contract, Raccoon Network Token (RAC). In this token, every time a user transfers a RAC token, there is a 6% tax and the tax fees are transferred to an EOA, where the malicious project party could cash out to USDT anytime.

For the Freedom Protocol, the project party collected USDT by selling their NFTs at a price of 100 USDT. Afterwards, they did not continue their development and the funds have since been transferred out through CEXs.

$FLARE - $17 Million Loss​

On 14th November 2022, $FLARE token conducted an exit scam of ~$17m. Essentially, the root cause was the victim contract (unverified) allowed the attacker to use a faketoken as input to call getUserInfo() and then set some value to the "balance" related data structure.

The project has a rewards contract which rewards users who have invested USDT, in exchange they get USDT. Internally, there is this “balance” related data structure which calls the investing contract and getUserInfo() to keep track of how much tokens have been invested.

However, the lack of input validation allowed the exploiter to parse the address input of his faketoken, with the necessary getUserInfo() method and fake his amount invested.

DEGO Finance / Cocos - $15 Million Loss​

On 9th February 2022, DEGO Finance / Cocos were hacked for $15m. The hacker compromised multiple private keys of the team. As a result, the hacker removed liquidity from the projects and stole all funds from their hot wallets. The funds have already been bridged to ETH chain and deposited into Tornado Cash.

Conclusion​

BSC continues to be a strong competitor, outperforming Ethereum in terms of daily active users and transactions. However, it is undeniable that 2022 has proven to be a tough year for both investors and developers due to the bear market and hack incidents, which impeded trust within the cryptocurrency community. Below we have some final tips for investors and developers:

For investors:

• Understand what you're signing, don't blindly sign random signatures/transactions (never sign signatures outside of official websites)
• Always double check that you are on the official website of the DApp
• Be extra wary of new/trending projects or projects that guarantee High APYs / use MEV bots, and always verify the project team’s authenticity
• Use multiple wallets for different activities (hot wallet for frequent transactions; cold wallet to store high value funds)
• Ensure you are interacting with an open-source contract and revoke approval once interaction is done
• Check the security and risk scores of interacted contracts (e.g when using Trust wallet) If High Risk is flagged, we strongly advise to stay away

Feel free to reach out to our team if you have any doubts about a certain project / contract address / transaction / risk score!

For developers:

• Verify & open-source all relevant contracts on-chain (to ensure transparency and trust within the space)
• Ensure the project is audited by at least 2 well-known security companies and fix all issues where applicable (Including auditing newly added code)
• Incorporate / Implement a bug-bounty program to upkeep the security posture of the project and encourage the community to ensure the code remains secure
• Ensure security is at the core of the business: run sufficient testing / stress-testing / simulations such as (1) adverse token price fluctuations, (2) edge cases
• Prevent centralization risks by using multi signature wallets and not a single EOA wallet to run operations
• Minimize contract upgradeability and only apply to contracts when necessary
• Ensure funds are stored securely (key management, fund distribution)
• Implement safeguards in the event of a hack (formulate an Incident Response plan, introduce time lock / pausing within the smart contract)
• Constant monitoring of system parameters e.g Exchange Rate of a token

Hashdit​

HashDit’s core mission is to provide the essential threat intelligence for the everyday crypto investors to make informed decisions. Our methodology includes a variety of automated and manual techniques to evaluate a DApp project.

Thanks to our ever hardworking team, Hashdit has launched several products in 2022.

Products at Hashdit currently:

• Risk assessment: All-in-one collection of security rating framework, auto-scan tools, and corresponding APIs, which are able to deliver accurate detection for potential rugpull/exploit risks based on a smart contract address. This is integrated with platforms like Trust Wallet and PancakeSwap, to leverage their reach and protect more users.

  It is able to detect multiple other risks, besides the usual SWC bugs, such as Tornado Cash interaction, risky functions encompassing ERC20 or ERC721 token standards (such as Migrate() or Blacklist() ), HoneyPot detection, etc. This can help users gain a better understanding of the smart contract, if it could be a scam.

• Audit service: Comprehensive code audits following extensive and detailed best practices for smart contracts and discovering code loopholes / security vulnerabilities before they are deployed on-chain, guaranteeing users’ safety on BSC.

• Monitoring: Detecting sensitive events / transactions that happen on-chain to quickly respond and minimize any additional financial losses. At the same time, Hashdit warns users early by sharing any information we found on our Twitter

• Blog: Our goal is to share our security knowledge for builders, investors and users in the Web3 community. With all the players in the industry equipped with the security knowledge needed and adopting a security-first mindset, only then will the Web3 ecosystem be a safer place for everyone.

In addition, Hashdit is a major contributor to AvengerDAO, a community-run security initiative to ensure user safety on BSC. Working together with other security companies in the industry, we will aim to reduce the security incidents on BSC, and especially towards Bridge projects and Scams. We are excited to present even better products in the future and improve BSC overall security.

To a better year ahead! Happy new year to all!

Glossary​

General Incident classification​

The type of incidents can be generally broken down into 3 types:

• Hacks

  • Hacks in general, is the practice of intentionally exploiting weaknesses in an organization's computer systems. In the context of blockchain, it is exploiting vulnerabilities in fundamental components of DApps and in the blockchain infrastructure. The non-exhaustive list of components can be: blockchain bridges, oracles, crypto wallets, Frontend/backend application and smart contracts which are deployed on-chain. Examples include business logic issues and lack of validation.
  • At times, it could be compromising the private keys of project teams through traditional attack vectors.

• Scams

  • Scams are Web3 projects that do not intend to deliver promised features. Indeed, they usually entice users to invest or participate in the project with the only intent of keeping their invested money and leaving the users hanging.

  • Scams could be executed by dumping tokens, stealing all the invested funds, through means like sending sketchy emails and websites, or creating fake accounts on social media. In the context of blockchain, scams can involve investing in a “Get-rich-quick scheme” such as a Ponzi scheme or tricking users into signing unintended transactions that will result in stolen funds.

  • Do refer to our blog article for more details on the top 6 crypto scams in 2022.

• Improper Management

  • Improper Management is a unique situation where the project party mismanages components that associate with user funds. Some examples include application misconfiguration issues that could expose critical information about users / project funds, or when the project party mints uncollateralized funds to perform high risk trading. This will be at the expense of users’ funds being lost.

Project type classification​

• Bridge

  • A blockchain bridge is a tool that lets you port assets from one blockchain to another, solving one of the main pain points within blockchains – a lack of interoperability. Since blockchain assets are often not compatible with one another, bridges create synthetic derivatives that represent an asset from another blockchain.

• DeFi (Decentralized Finance)

  • Decentralized finance (DeFi) is a new financial framework consisting of decentralized blockchain protocols and underlying smart contract technology. DeFi, as it is most commonly known, makes it possible for users to access different types of financial products and services without the need for a centralized authority.

• GameFi (Play-to-Earn)

  • 'GameFi' refers to the financialisation of video gaming. It is characterized by its 'play-to-earn' (P2E) business model, and mainly refers to blockchain games that offer tokenized incentives to players while enabling frameworks for player-as-owner rather than the standard player-as-consumer.

• Learn-to-Earn

  • 'Learn-to-Earn’ refers to the financialisation of quizzing. It is characterized by the business model, which offers tokenized incentives to players who participate in the project and answer quizzes.

• Metaverse

  • Crypto metaverses are immersive virtual worlds with immense social and financial potential. Their use of blockchain infrastructure enables them to tap into the wider crypto economy, making virtual items exchangeable for real economic value beyond the confines of the metaverse.

• SocialFi

  • SocialFi is the fusion of social media and Web3. It refers to social media on a blockchain with a layer of finance in it. The concept brings together the principles of decentralized finance (DeFi) and social media to create, manage, and own content generated by the users on the platforms.

• ExerciseFi

  • ExerciseFi or Move-to-Earn as its name implies, users are rewarded for movement, whether walking, running or dancing to a rhythm.

• Oracle

  • Oracles are complex computerized systems that connect data from the outside world (off-chain) with the blockchain world (on-chain). Most blockchains have native cryptocurrencies that are used to transfer value, enable the operations of the protocol, or facilitate governance.

• Wallet

  • A Cryptocurrency Wallet is an application that functions as a wallet for your cryptocurrencies. It is called a wallet because it is used similarly to a wallet you put cash and cards in. Instead of holding these physical items, it stores the rivate keys you use to sign for your cryptocurrency transactions and provides the interface that lets you access and manage your cryptocurrencies.

• DAO

  • A decentralized autonomous organization (DAO) is an emerging form of legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity.