poloniex_hacker_lost_funds.md

Poloniex exchange was just hacked.

A hacker made this transaction https://etherscan.io/tx/0xc9700e4f072878c4e4066d1c9cd160692468f2d1c4c47795d28635772abc18db

And the tokens got permanently frozen in the contract of GLM! This shouldn't have happened if ERC-20 GLM token would be developed with security practices in mind. But ERC-20 still contains a security flaw that I discloser multiple times (here is a history of the ERC-20 disaster).

You can also find a full history of my fight with Ethereum Foundation over token standards since 2017 here https://dexaran.github.io/erc223/

The problem is described here.

Here is a security statement regarding the ERC-20 standard flaw: https://callisto.network/erc-20-standard-security-department-statement/

As of today, about $90,000,000 to $200,000,000 are lost to this ERC-20 flaw. Today we can increase this amount by $2,500,000.

The problem with ERC-20 token is that it doesn't allow for error handling which makes it impossible to prevent user errors. It was known for sure that the GLM contract is not supposed to accept GLM tokens. It was intended TO BE THE TOKEN, not to own the tokens. For example if you would send ether, NFT or ERC-223 token to the address of the said GLM contract - you wouldn't lose it.

Error handling is critical for financial software. Users do make mistakes. It's a simple fact. Whether it is misunderstanding of the internal logic of the contract, unfamiliar wallet UI, being drunk when sending a tx or panicking after hacking an exchange - doesn't matter. Anyone could be in a position of a person who just lost $2,5M worth of tokens to a simple bug in the software that could have been easily fixed.

I would use an opportunity to mention that ERC-223 was developed with the main goal of preventing such accidents of "funds loss by mistake: https://eips.ethereum.org/EIPS/eip-223

What is even worse - EIP process doesn't allow for security disclosures now. There is simply no way to report a security flaw in any EIP after its assigned "Final" status.

I'm proposing a modification to EIP process to allow for security disclosures here: https://ethereum-magicians.org/t/modification-of-eip-process-to-account-for-security-treatments/16265/12

There are ongoing debates on submission of an informational EIP regarding the ERC-20 security flaw: ethcatherders/EIPIP#293

And the Informational EIP pull request: ethereum/EIPs#7915

We've built ERC-20 <=> ERC-223 token converter that would allow both standards to co-exist and eventually prevent the issue of lost funds https://dexaran.github.io/token-converter/

Also my team is building a ERC-223 & ERC-20 compatible decentralized exchange that will also remove such a weird opportunity to lose all their life savings to a software bug from users: https://dex223.io/

If you are rich and worried about ERC-20 security bugs dealing damage to Ethereum ecosystem and ruining users days - welcome to our ERC-223 family. We stand for security. We don't let our users funds to be lost by mistake.

@mal-plankton

Contracts don't automatically send back ETH and NFTs.

Contracts that are not supposed to receive ETH or NFTs or ERC-223 tokens will reject them on transfer. A contract must explicitly declare that it is supposed to receive ETH / NFT / ERC-223 tokens by implementing a special function in the code. By default contracts reject incoming payments.

Ok. You're right about that. I'm having a brain fart.
You need a payables or receive function.

---

For the bank thing. Wired funds are lost forever. You can never get them back unless the government stops the transfer due to sanctions violation.

For non-wired transfers, they need the bank or the recipient to return the funds. This is not automatic, and it often requires going through the legal system. They have to use another transaction back to send it back.

---

Taking a step back and thinking about this philosophically, I wish Ethereum had something more similar to standardized native tokens like TRC-10 tokens, BRC-20 tokens, or Cardano's native tokens. These are tokens where all their functions are standardized and the only differences are the input parameters like symbol, name, total supply, mintable, burnable, etc.

ERC-20 is the opposite of them because it's purposely so flexible. You can create scam tokens, spoofed tokens, and functions that return arbitrary values. And that's just how ERC-20 is. I'm not sure I'd want to lock it down. If I wanted something else, I'd use ERC-223 or create another standard that's more similar to native tokens.

I'm not going to oppose you in pushing for this change. It would've been very nice to have if this safety feature had been implemented from the start. But I'm concerned that changing the default action now would possibly break some dApps that are expecting tokens to be sent to the contract.

I'm concerned that changing the default action now would possibly break some dApps that are expecting tokens to be sent to the contract.

Yes, this is the main challenge with the adoption of a new standard. However, this is the only secure option.

In order to address this problem I've created ERC-7417: Token Converter. A service that will allow ERC-20 and ERC-223 tokens to co-exist. It will create a ERC-223 "fork" for every existing ERC-20 token and allow users to transform tokens from one standard to another.

• https://dexaran.github.io/token-converter

• https://eips.ethereum.org/EIPS/eip-7417

• https://www.reddit.com/r/ethereum/comments/185gf4f/erc223_erc20_token_standards_converter_is_live_on/

FYI... The other day I also suggested to include it by default: WETH10/WETH10#94

Ability to rescue tokens and ETH sent to contract address

Also here, popped in my timeline: https://x.com/PaulRBerg/status/1731360509533020199?s=20

FYI... https://dexaran.github.io/erc20-losses/

Some token contract addresses are more advanced, they include staking / burning / streaming / locking / vesting / migrating to V2 / any other primitive.

Just saying that the list is not 100% accurate. But still get the point, it can be life changing situation to some victims, pretty sure some people selfdestruct as a consequence.

Some token contract addresses are more advanced, they include staking / burning / streaming / locking / vesting / migrating to V2 / any other primitive.

Yeah, we already did some research and removed tokens that were obviously deposited to contracts on purpose. This is a very time-consuming task however as we need to go through all the media associated with hundreds of tokens to figure out what happened.

Here is a list of exclusions (without exclusions there were $2.4B lost):

https://github.com/Dexaran/dexaran.github.io/blob/master/erc20-losses-sources/src/constants/excludes.json

@marsrobertson

FYI... The other day I also suggested to include it by default: WETH10/WETH10#94

Thats a good effort but I don't believe that the problem can be solved on the wallet level. This is an inherent problem with the token standard.

1. You need to deposit tokens to contracts. Tokens that can't be deposited are useless.
2. ERC-20 doesn't have a "communication model" i.e. when it's sent to the contract it's impossible to recognize the transaction for the recipient.
3. In order to address pt.2 Vitalik and @frozeman developed a weird quirk which resembles a pull transacting method: approve & transferFrom pattern. It was not a smart design, it was a crutch to address a bug in early days EVM that doesn't exist since it was fixed in 2016.
4. However, leaving transfer() function without handling makes it impossible to handle transactions and therefore it's impossible to handle errors.
5. At the same time approve&transferFrom is very bad. It takes 2 transactions to deposit a token to contract this way, it requires more GAS than a direct deposit with a callback invocation, it introduces security risk as users are authorizing some third party to have access to their funds hence all the permit scams and approval-related accidents. Approvals are (1) unnecessary and (2) insecure.

Even if we solve the problem with unhandled transfer function in ERC-20 at the wallet level the problem of inherently wrong design and insecure method of depositing via approve&transferFrom will persist.

And the root of the problem is pt.1 - we need a proper method of depositing tokens to contracts. Pull tx method is good for credit cards, not for trustless systems.