Defrost Finance breaks silence on ‘exit scam’ accusations, denies rug pull

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Defrost Finance, the decen­tral­ized trad­ing plat­form that suf­fered a $12 mil­lion exploit lead­ing up to Christ­mas, has denied alle­ga­tions that it had “rugged” its users as part of an elab­o­rate “exit scam.”

On Dec. 23, the plat­form announced it suf­fered a flash loan attack, lead­ing to the drain­ing of user funds from its V2 pro­to­col. One day lat­er, anoth­er inci­dent saw a hack­er steal the admin key for a sec­ond “much larg­er” attack on the V1 protocol. 

It’s under­stood the attacker(s) con­duct­ed the flash loan attack by adding a fake col­lat­er­al token and a mali­cious price ora­cle to liq­ui­date users.

Observers, includ­ing blockchain secu­ri­ty firms Peck­shield and Cer­tiK, as well as asset man­age­ment plat­form DeFiYield, have sug­gest­ed based on “com­mu­ni­ty intel” that mem­bers of the team may have been behind the “exit scam” — giv­en the fact that an admin key was required to per­pe­trate the exploit. 

How­ev­er, in an exclu­sive state­ment to Coin­tele­graph on Dec. 28, the team behind Defrost Finance broke its silence on the rug-pull accu­sa­tions, stating: 

“We deny the accu­sa­tions that the team rugged users. A com­pro­mised key does not equate to a rug­pull, as much as the episode may raise doubts among the public.”

Defrost made two key argu­ments to deny its involvement. 

First­ly, Defrost argued that if they had planned to orches­trate a rug pull, they would’ve done it months ago when its total val­ue locked (TVL) neared $200 million.

Accord­ing to DefiLla­ma, Defrost Finance’s TVL had fall­en to just $13.14 mil­lion on Dec. 23, the day of the first attack. 

“Any­one behind a rug­pull would have prob­a­bly defraud­ed investors when our TVL was 15 times what it is today.”

Sec­ond­ly, Defrost argued that if they had been the per­pe­tra­tors they would have “fled” long ago, which they haven’t done. 

“[Any­one] antic­i­pat­ing the inevitable atten­tion from the cryp­to com­mu­ni­ty would have fled long ago. Yet here we are, work­ing to get the funds back to their right­ful own­ers,” it said. 

Defrost Finance’s state­ment came just hours after decen­tral­ized finance invest­ment plat­form DeFiYield again accused Defrost Finance of “rug pulling” its users in a Medi­um blog post on Dec. 27.

DeFiYield point­ed to on-chain data that it claimed sug­gest­ed the cre­ator of the mul­ti-sig wal­let was the same address that request­ed and then lat­er approved the trans­ac­tions which insert­ed the mali­cious source ora­cle that liq­ui­dat­ed users.

It also alleged the devel­op­ers behind Defrost Finance were the same as those of Pheonix Finance (FinNexus) which was exploit­ed for $7.6 mil­lion in May 2021 in what some have also spec­u­lat­ed was an “inside job.”

Relat­ed: Here’s how Defrost Finance plans to refund users fol­low­ing $12M hack

Defrost said it regrets being unable to share more details about the attack, as its pri­or­i­ty has been help­ing users retrieve their funds. 

“There are sev­er­al issues that we would like to address in recent reports con­cern­ing Defrost Finance. We regret we can­not get deep enough into some details — but sure­ly the com­mu­ni­ty will under­stand this is a sen­si­tive mat­ter and our pri­or­i­ty must be to help our users retrieve their funds. All oth­er con­cerns are sec­ondary to this,” it said.

It’s cer­tain­ly unhap­py about the alle­ga­tions and ear­li­er today it warned mem­bers of its Telegram group that it will ban mem­bers that attempt to per­pe­trate the “false nar­ra­tive” that the Defrost team is respon­si­ble for the recent attacks. 

“At this point, it’s not con­ducive to mov­ing for­ward to con­tin­ue allow [sic] the pub­lic chats to oper­ate like the Wild Wild West. Will be imple­ment­ing stricter protocols.”

A post on Defrost Finance’s Telegram group by a core team mem­ber. Source: Telegram

On Dec. 26, Defrost announced on Twit­ter it had man­aged to recov­er all the funds tak­en in the V1 hack, shar­ing in a post on Medi­um hours lat­er it has begun the process of return­ing funds to affect­ed users. 

The Ethereum wal­let con­trolled by Defrost that is being used to facil­i­tate the return of funds cur­rent­ly shows that $2.9 mil­lion of Ether (ETH) has been returned, along with $9.9 mil­lion worth of Dai (DAI).

“This will take a lit­tle time since we need to map who had what and where, but the wheels are turn­ing fast and the entire process will be man­aged through smart con­tracts. It will be ful­ly trans­par­ent and fair­ly swift,” Defrost told Coin­tele­graph in its recent statement. 

No word was giv­en about the V2 pro­to­col as of yet, however.



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