Patched IBC bug strikes Terra chain

A vulnerability in inter-blockchain communication (IBC) protocol that was patched in April reared its bugly head on the Terra blockchain, late Tuesday.

Onchain data showed an erroneous minting of 58 million ASTRO tokens — worth about $2.7 million — and about $4.1 million in USDC, USDT and wrapped BTC.

Terra conducted an emergency chain upgrade to prevent the vulnerability from affecting other tokens, according to a post on X. The current Terra is the fork that arose following the collapse of the UST stablecoin on what’s now known as the Terra Classic blockchain.

ASTRO is the governance token of Astroport, a decentralized exchange launched in late 2021 on Terra Classic.

The Terra/Luna implosion in May 2022 forced many projects, including Astroport, to rethink their strategies. Astroport pivoted towards a multichain strategy with its primary hub on Neutron, a smart contract blockchain built on the Cosmos SDK.

Swift maneuvers from the Astroport team have reportedly contained the damage from the IBC bug exploit.

Read more: IBC had a close call with a critical vulnerability

Astroport co-lead Donovan Solms commented, “Today was the toughest day [Astroport] has had since the collapse of Terra in ’22. And for a second time, it was due to circumstances outside of our control and our contracts remain unaffected.”

Blockworks requested comments from representatives of Terraform Labs and Neutron.

It’s not immediately clear how the bug, which was discovered and fixed in April, was able to return.

Zaki Manian, co-founder of Sommelier, reported that a June upgrade “accidentally” reintroduced the vulnerability.

Terra was running on their own fork of IBC software, outside the main Cosmos Github repository, which did not contain the fix, Manian told Blockworks.

Running a private version of IBC puts the onus on the team to be responsible for maintaining it and keeping critical bugs out.

“When you have a team that becomes a skeleton crew, this decision that they made to be on a fork had an enormous cost,” Manian said.

One measure which could have mitigated the risk in this case is the use of IBC rate limits, an idea which has many proponents, particularly on chains with DeFi applications.

“There is very little reason why Terra needed to be able to move $3 million in one day,” Manian said. “A significant fraction of all their [total value locked], so IBC rate limits might have made a big difference.”

Gabriel Shapiro, the general counsel at Delphi Labs, who has closely followed the legal issues facing Terraform Labs (TFL) and its co-founder Do Kwon, suggested the legal case brought by the SEC against TFL, may have indirectly caused the oversight.

Read more: Terraform agrees to pay nearly $4.5B in proposed judgment with SEC

Delphi Labs co-founder José Macedo claims to have strong evidence of the attacker’s identity.

The ASTRO token fell by more than -70% following the incident and is currently down about -35% on the day.

Updated July 31, 2024 at 6:09 pm ET with additional context.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.