Weekly Crypto Roundup: Titans collide, hacks continue, and sanctions hit

Binance-WazirX Clash

India’s Enforcement Directorate (ED) froze ₹ 64.67 crore worth of bank deposits belonging to crypto exchange WazirX. The ED also investigated allegations of money laundering and “mysterious” crypto transactions between WazirX and Binance that were not available on the blockchain.

(Sign up for our technology newsletter, Today’s Cache, to get insights on emerging topics at the intersection of technology, business and politics. Click here to subscribe for free.)

WazirX clarified that such transfers were users sending crypto funds between their personal WazirX and Binance accounts.

However, during this time there was a public clash when WazirX CEO Nischal Shetty claimed that WazirX was owned by Binance, the world’s largest crypto exchange. Binance’s CEO, billionaire Changpeng Zhao, strongly denied these ownership claims and urged WazirX users to move their money to Binance. Following a heated exchange of tweets between the two CEOs, WazirX and Binance announced an end to “off-chain” transfers between the two exchanges. WazirX further warned Indian users that moving their funds to Binance could put them at risk of violating India’s crypto tax regulation, where 1% or 5% must be deducted at source for certain amounts.

As the ED continues its investigation, an Indian government source warned that the WazirX episode exposed the “dark side” of cryptocurrency and urged users to be cautious about such transactions.

The ED’s future findings regarding WazirX and its financial activities could reinforce the Indian government’s stance on crypto innovation for years to come.

No end of hacking jobs

Three days into August, thousands of wallets linked to the Solana blockchain were drained of crypto assets as members of the ecosystem tried to stop the leak and identify which vulnerability the hacker was exploiting. Days later, evidence appeared to point to the Slope wallet providing services for Solana users.

Slope published a statement on Thursday confirming that a total of 9,232 addresses were hacked. An independent audit discovered that there was a vulnerability in the mobile version of the wallets from July 28 to August 3.

“While there is no conclusive evidence from the auditors to link the Slope vulnerability to the exploit, its very existence put many assets at risk,” the release said.

A detailed audit will shed more light on the actual cause(s) of the hack, although the company continues to hunt down the hacker and find ways to compensate the affected users.

However, the next hack was not far away when Curve Finance, an exchange liquidity pool, was exploited on Tuesday. This attack affected Curve Finance’s website and over $500,000 was reported stolen through a malicious contract on the homepage, according to Binance’s CEO. This time, however, the saga seemed to end on a lighter note as the hackers tried to send the stolen funds to Binance.

“Binance froze/recovered $450,000 of Curve stolen funds, representing 83%+ of the hack. We are working with LE to return the funds to users. The hacker continued to send funds to Binance in various ways, thinking that we cannot catch that, Zhao tweeted on Friday.

Mr. Zhao also advised that Web3 projects should not use GoDaddy as a Domain Name System (DNS) for security reasons.

The incident shows how not only crypto protocols, but also their accompanying channels – websites, social media accounts, messaging systems, provider services, etc. – are at risk of being targeted by hackers. On the other hand, it also highlights the role centralized crypto exchanges can play in preventing such incidents well in front of legal authorities.

A tornado of chaos

Hackers who abscond with millions of dollars in crypto funds often throw off the authorities by running their ill-gotten gains through a virtual currency mixer. Such ‘mixers’ hide the source of the funds by mixing them with funds from other sources – including legal ones – so that the illegal transactions become more or less impossible to trace.

A common virtual currency mixer is Tornado Cash, a decentralized protocol based on the Ethereum blockchain. Tornado Cash has been linked to the Harmony and Nomad crypto bridge hacks that took place this summer. On Monday, the Treasury’s Office of Foreign Assets Control (OFAC) announced that it is imposing sanctions on Tornado Cash for not doing more to prevent money laundering.

However, the following days revealed that the sanctions would not only affect hackers, but also legitimate crypto traders. In particular, a number of accounts on dYdX – a decentralized crypto exchange based on the Ethereum blockchain – were also blocked as a result of the sanctions.

dYdX issued a statement clarifying that the blocks were a result of some users’ funds being tied to the sanctioned crypto mixer, even though the users themselves had no interactions with Tornado Cash.

“Many accounts were blocked because a certain portion of the wallet’s funds (in many cases, even insignificant amounts) were at one point linked to Tornado Cash, which was recently added to the sanctions list by the US Treasury Department’s OFAC,” dYdX’s release said .

dYdX continues to unban accounts, but the incident shows how one country’s sanctions can have far-reaching effects that also reach deep into decentralized ecosystems.