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Neptune Mutual to Close Cover Marketplaces

5 min read
Neptune Mutual Final

After much deliberation and careful thought Neptune Mutual decided to close the cover marketplaces.

After much deliberation and careful thought Neptune Mutual decided to close the cover marketplaces. Below the reasons for the decision as well as what it means for the community.

The marketplaces will be closed using an emergency withdrawal process whereby the liquidity provided to cover pools by LPs will be returned to the wallet addresses from which the liquidity was supplied. In addition to protecting cover pool LPs, there will also be refunds to all cover policy purchasers with an existing and valid policy who have paid over 10 USD in policy fees in one transaction.

For veNPM holders, please fill out this form to receive a refund for your veNPM to NPM conversion penalty.

From the end of June there will no longer be NPM emission incentives for LPs i.e. Epoch 3 of the liquidity gauge emissions will be canceled.

Unused funds raised from financial backers will be returned to those backers; this includes DEX liquidity that has now been removed from SushiSwap and Uniswap. A small amount of liquidity on SushiSwap Arbitrum has been left to enable a minimum amount of NPM trading.

The protocol will be open sourced, and become a true public good. Enabling the community to fork the code developed by the Neptune Mutual team such that others might use the existing resources to further our mission to make the blockchain space better protected against smart contracts and other risks.

There are numerous factors that have led to this difficult decision, some of which are external factors which are uncontrollable or unforeseeable. A few factors summarized below:

CEX Listing#

“Given Neptune Mutual’s Tier 1 backers, why have you not listed on a top CEX?”

This is perhaps one of the most frequently asked questions. In short, the answer is that for a variety of reasons Neptune Mutual was not able to achieve the diverse set of performance metrics (community size and engagement, marketplace user activity, DEX 24 hour trading volume, TVL growth etc.) required to list on top tier CEX. The CEXs that are prepared to list NPM token do not have the depth of liquidity or breadth of user-base to offer good prospects for NPM tokenholders.

Growth Performance#

The above point invariably leads to the question

“Why has Neptune Mutual not achieved strong growth?”

It is tempting to take a shortcut to answer this question by pointing a finger at one specific factor, but the reality is that there are many contributing factors. A few summarized below:

The DeFiInsurance Narrative#

Since the outset of engaging with the community we have endeavored to highlight the need for DeFiInsurance; Neptune Mutual built a comprehensive dataset of on-chain hacks available, anywhere, and each week we highlight the many millions of dollars that are stolen as a result of smart contract hacks. Despite this, we have consistently been confronted by projects unwilling to spin up cover pools in our marketplace because of the sentiment that audits of their code are sufficient to persuade their community that their protocol is safe. Less than 0.3% of all digital assets are protected with some form of DeFiInsurance, and yet despite all the media reports of hacks, the conference discussions about the importance of governance or CEX proof-of-reserves, it continues to be the case that it is extremely difficult to get media attention to focus on the need for a fast and efficient means of mitigating smart contract risk.

A variety of approaches have been taken by different DeFiInsurance protocols to address this, from attending multiple conferences throughout the year and significant marketing spend, to the leaner approach that Neptune Mutual took (in part as a result of the bear market in 2023). What can be said is that no DeFiInsurance protocol has managed to achieve significant growth over the last 18 months, sadly the overall TVL of the sector has shrunk a lot.

Continue to Invest in Growth, or Refund?#

For all the reasons above, at this moment the best course of action is no longer to double-down on investing in growth, but rather to refund unused capital and close the marketplaces.

The consequences are very tough for the Neptune Mutual team who have spent the past 3 years of their time on the mission to facilitate  safer environments within DeFi.  The team has delivered products according to the roadmap and the fact that the protocol was never hacked, despite attempts being made on the darkweb, is testament to the expertise, passion and absolute focus on security.  The team survived the FTX and UST crisis unscathed, and believed that the continued growth in hacks would lead to growth in the demand for a good solution to mitigate these risks, but sadly, as can be seen right across the DeFiInsurance category, this is not yet in sight. So we would like to thank the team for all the dedication, skill and passion invested into the Neptune Mutual project since the outset.

What's Next?#

The team will open source the protocol, including blockchain indexing protocol (subgraph alternative), frontend, middleware, database, and backend code, to make it a true public good. This will allow anyone to fork the code and create covers by defining parameters and premium ranges, potentially leading to innovative covers and organic usage.

The Discord channel will be closed to reduce the risk of phishing and other types of cyber attack, any questions / queries will be responded to in the Telegram channel.

We want to take this final opportunity to thank you all for your support.

Disclaimer:#

Neptune Mutual will contact only its financial backers, with whom a signed agreement exists, in relation to next steps (i.e. holding NPM tokens does not qualify you for any form of refund). Contact will be made only from a neptunemutual.com domain email address so please check the source of any email you may receive very carefully. Please ignore any messages from any other email or social media accounts in relation to token/cash refunds.

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Analysis of the Pike Finance Exploit

5 min read
Exploit Analysis

Learn how Pike Finance was exploited, resulting in a loss of assets worth $1.65 million.

TL;DR#

On April 30, 2024, Pike Finance was exploited across the Ethereum Mainnet, Optimism, and Arbitrum chains due to a smart contract vulnerability, which collectively resulted in a loss of over 479 ETH, 99,970 ARB, and 64,126 OP, worth approximately $1.65 million.

Introduction to Pike Finance#

Pike is a universal liquidity market optimized for native assets.

Vulnerability Assessment#

The root cause of the exploit is a misalignment in the storage layout of upgradeable smart contracts due to the introduction of a new dependency. This misalignment resulted in situations that allowed the attacker to bypass owner permissions.

Incident Analysis#

On April 26, 2024, Pike Finance was initially exploited across multiple chains, including Ethereum, Arbitrum, and Optimism networks, resulting in a loss of assets worth approximately 299,127 USDC. The attack was possible due to a forged CCTP message.

To reduce the extent of this attack, the team had to pause the protocol, and the affected contracts were upgraded with the inclusion of an additional dependency within their smart contracts.

This inclusion of the new dependency altered the storage layout of their upgradeable contracts, which caused misalignment of the variables in their new contracts.

In particular, the position of the `initialized` variable was misaligned, due to which the position occupied by this variable was taken over by some other variables, causing misalignment in the storage mapping.

As the `initialized` variable was no longer as accessible as it should be, it caused the contract to behave as if it were uninitialized.

The attacker then executed the initialize function after adding their address to the `_isActive` variable of the contract.

function initialize(address _console, address _rng, address _vault, address _gameProvider, uint16 _minPos, uint16 _maxPos) public nonPayable {
  require(msg.data.length - 4 >= 192);
  v0 = v1 = !stor_b_2_2;
  if (!stor_b_2_2) {
    v0 = v2 = stor_b_1_1 < 1;
  }
  if (!v0) {
    v0 = v3 = !this.code.size;
    if (!bool(this.code.size)) {
      v0 = 1 == stor_b_1_1;
    }
  }
  require(v0, Error("Initializable: contract is already initialized"));
  stor_b_1_1 = 1;
  if (!stor_b_2_2) {
    stor_b_2_2 = 1;
  }
  _gateway = _console;
  owner_2_0_19 = _rng;
  _endpoint = _vault;
  stor_4_0_19 = _gameProvider;
  _isActive =
    0x1 |
    (bytes31(msg.sender << 40) |
      (0xffffffffffffff0000000000000000000000000000000000000000ffffffff00 &
        ((_maxPos << 24) |
          ((0xffffffffffffffffffffffffffffffffffffffffffffffffffffff0000ffffff & (_minPos << 8)) | (_isActive & 0xffffffffffffffffffffffffffffffffffffffffffffffffffffff00000000ff)))));
  _nativeAsset = 0xeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee;
  if (!stor_b_2_2) {
    stor_b_2_2 = 0;
    emit Initialized(1);
  }
}

Four days after their original exploit, the exploiter was able to leverage this condition to further upgrade the affected contracts, thereby bypassing admin access to withdraw the funds held in these contracts.

The attack transaction on the Ethereum Mainnet resulted in a loss of 479.39 ETH, which was worth approximately $1,443,114. On the Optimism chain, the attack resulted in a loss of 64,126 OP, which were worth approximately $150,458, while on the Arbitrum chain, the attack resulted in a loss of 99,970 ARB tokens, which were worth approximately $102,269.

Aftermath#

The team acknowledged the occurrence of the exploit and stated that they are continuing to work on their investigation. In hopes of recovering the stolen assets, they announced a bug bounty reward of 20% for the attacker. They also stated that they would be sharing a post-mortem report and plans to make the affected users whole.

The team also published a detailed post-mortem report of the incident, which states that the Pike Beta version is officially sunset with no plans to re-enable the functionality of the protocol in its current state.

They further highlight their plans to continue investigating and taking legal measures to trace the stolen funds and hackers, set up an insurance pool, and execute a restitution plan for Pike users, among many other precautions. 

Solution#

To address the exploit in Pike Finance and ensure the security of upgradeable smart contracts, it is crucial to maintain the consistency of the storage layout across all contract versions. Developers must strictly adhere to appending new state variables at the end of the contract and avoid deleting or rearranging existing ones. This approach prevents storage collisions, where changes in variable order could lead to critical application errors.

Adopting a namespaced storage layout, as recommended by ERC-7201, can significantly enhance the management of storage structures. This practice involves implementing namespaces for storage variables and isolating storage areas to minimize the risk of unintended interactions during contract upgrades. It is particularly beneficial when modifying base contracts or adjusting the inheritance hierarchy.

In the realm of proxy patterns, ensuring a clear separation between the proxy contract that handles all user interactions and the implementation contract containing the logic is vital. This separation helps in avoiding unintended interactions between user calls and the proxy logic. Clear and non-conflicting function selectors are crucial, as they determine which function in the implementation contract is called. It's also important to avoid shadowing important administrative functions in the proxy contract with new implementations.

Incorporating storage gaps into smart contracts is another effective solution. These are unused storage spaces intentionally left in the contracts to accommodate future variables. This flexible approach allows the addition of new variables without disturbing the existing storage layout, providing a buffer against potential misalignments due to upgrades.

Regular security audits and comprehensive testing are fundamental to maintaining the integrity of smart contracts, particularly those that are upgradeable. The quick succession of attacks on Pike Finance, separated by just four days, suggests that the team likely did not have sufficient time to conduct thorough audits or chose not to invest in more rigorous testing within this tight timeframe. This oversight highlights the need for engaging professional auditors and implementing a robust testing framework that includes unit, integration, and simulation tests. Simulation tests are particularly important as they mimic potential upgrade scenarios to detect unforeseen issues.

Even with robust security measures in place, completely eliminating the possibility of vulnerabilities being exploited remains a challenge. In these instances, partnering with Neptune Mutual is essential. By establishing a dedicated cover pool with Neptune Mutual, the negative impact of events like the Pike Finance exploit can be significantly reduced. Neptune Mutual is renowned for providing coverage for losses stemming from smart contract vulnerabilities, using parametric policies tailored specifically for these types of risks.

Working with Neptune Mutual streamlines the recovery process for users by minimizing the need for extensive proof of loss documentation. Once an incident is verified and resolved through our comprehensive incident resolution protocol, we swiftly shift our focus to providing prompt compensation and financial support to those affected. This method ensures quick relief for users impacted by such security incidents.

Our coverage through our marketplace spans multiple key blockchain networks, including Ethereum, Arbitrum, and the BNB chain, offering broad support to a varied demographic of DeFi users. This broad coverage enhances our capability to protect against diverse vulnerabilities, thereby bolstering the overall security of our extensive client base.

Reference Source BlockSec

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Tags

Exploit Analysis Pike Finance Smart Contract Vulnerability Upgradeable Contracts Storage Layout Misalignment Blockchain Hacks Decentralized Insurance Parametric Insurance

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