Jimbo’s Protocol is a decentralized finance (DeFi) system built on the Arbitrum chain. The protocol uses a semi-stable floor price for its ERC-20 token, $JIMBO, backed by a treasury of Ether (ETH). However, despite its pioneering efforts to maintain on-chain liquidity and price floors, Jimbo’s Protocol recently faced a Flash loan attack. On May 28, 2023, a sophisticated attacker managed to exploit a loophole in the protocol’s slippage control mechanism, walking away with approximately $7.5 million in ETH.
The attack had immediate and severe consequences for Jimbo’s Protocol and its community. The attacker successfully drained a large portion of the treasury’s ETH, affecting the protocol’s stability and trustworthiness. The incident led to a sharp 40% decline in the value of $JIMBO, eroding the token’s market position and investor confidence.
In decentralized finance (DeFi), liquidity rebalancing is the process of reallocating assets within a liquidity pool to ensure efficient capital utilization and smooth price discovery. In simple terms, it means making sure there’s enough “money” in the right places in a trading pool to make trades easy and fair.
Slippage occurs when the price of an asset changes between the time you place an order and the time the order is fulfilled. In DeFi, it’s particularly important to control slippage to prevent significant price fluctuations that could result from large trades.
In $JIMBO’s case, rebalancing happens via three primary functions: Shift(), Reset(), and Recycle(). These are triggered based on the state of different bins—Floor Bin, Active Bin, and Trigger Bin.
The Shift() function plays a crucial role in the $JIMBO protocol, automatically activating when the Active Bin (the pool bin where the current trading price resides) moves past the Trigger Bin. The function performs two primary actions:
Simultaneously, the Shift() function also invokes a Reset() function call to redistribute the remaining $JIMBO tokens within the pool.
For more comprehensive insights into how these bins operate within the protocol, please refer to this Link
1. Obtain Initial Funds
2. Inflate $JIMBO Price
3. Transfer Tokens to Contract
4. Invoke Shift()
5. Crash the Market Price
6. Trigger Another Rebalance
7. Exploit and Profit
The attacker then returns the initial ETH borrowed through the flash loan, retaining a substantial net gain of 7.5 million.
The critical flaw was the absence of slippage controls in the Shift() function, enabling the attacker to trigger rebalancing actions at artificial price levels. Once liquidity was redeployed at these inflated prices, the attacker could then manipulate the market to purchase tokens at a much lower cost, making a substantial profit in the process.
Attacker’s Address(ETH)
Notable Transactions:
JimboController Contract
Attack Transaction
The protocol also sent an On chain message to the hacker
A system with a more sophisticated rebalancing mechanism that includes proper slippage control, could have likely prevented this exploit. By undergoing a comprehensive security audit, potentially from firms like BlockApex, protocols can identify and address these vulnerabilities before they’re exploited.
The Jimbo Protocol incident serves as a cautionary tale that even innovative DeFi protocols are vulnerable to sophisticated attacks. This event highlights the importance of comprehensive security audits, a service that BlockApex specializes in, to identify and mitigate vulnerabilities in DeFi protocols. As the DeFi sector continues to evolve, so should its security measures to protect investor interests and maintain system integrity.
Explore further Hack Analysis:
ADOT Finance integrates a blockchain-based marketplace and bridging system that facilitates the exchange and creation…
Bedrock is a multi-asset liquidity re-hypothecation protocol that allows the collateralization of assets like wBTC,…
What is Berachain? Berachain is a high performance, EVM-identical Layer 1 blockchain leveraging Proof of…
On September 3, 2024, Onyx DAO, a protocol derived from Compound Finance, suffered a severe…
The cryptocurrency world continues to expand rapidly, offering new investment opportunities almost daily. One of…
In today's digital age, where data is the new currency, safeguarding sensitive information has become…
This website uses cookies.