May 31, 2023

$4M ‘exit scam’ suspected as Kokomo Finance flies off radar, token plunges

Optimism-based lending protocol Kokomo Finance has been suspected of a $4 million “exit scam” that has seen user funds plucked from the platform via a smart contract loophole.

Blockchain security firm CertiK alerted its followers to the “exit scam” in a March 26 tweet, noting that the Kokomo Finance (KOKO) token had plummeted 95% in value in a matter of minutes.

CertiK also noted that Kokomo Finance removed all social media accounts immediately following the alleged rug pull too.

Kokomo Finance has either deactivated or deleted its Twitter account. Source: Twitter

CertiK said the deployer of KOKO attacked the smart contract code of a wrapped Bitcoin token, cBTC, by resetting the reward speed and pausing the borrow function.

After that, an address beginning with “0x5a2d..” approved the new cBTC smart contract to spend over 7000 Sonne Wrapped Bitcoin (So-WBTC).

The attacker then called another command to swap the So-WBTC to the 0x5a2d address, which produced a $4 million profit, according to the security firm.

Changes to the smart contract code of the KOKO began at about 9 am UTC on March 26. Source: Optimistic Etherscan

A CertiK spokesperson told Cointelegraph that it was the largest “incident” that the firm had detected on Optimism.

Director of security operations Hugh Brooks also told Cointelegraph that because the cBTC contract was upgradable, it was able to be implemented into a malicious one.

Kokomo Finance is an open-source and noncustodial lending protocol on Optimism, where investors could trade for wBTC, Ether (ETH), Tether (USDT), USD Coin (USDC) and Dai (DAI).

Kokomo Finance rose up the ranks quickly in recent days, with blockchain data platforms like CoinGecko and DefiLlama officially tracking it shortly after Kokomo Finance went live on Optimism on March 25.

The price of Kokomo Finance token, KOKO fell over 97% at about 4:10pm UTC time on March 26. Source: CoinGecko

Recent screenshots reveal that more than $2 million was locked into Kokomo Finance prior to it falling more than 97%.

Over 72% of the total value locked in the Kokomo Finance protocol came in the form of wrapped Bitcoin, according to data from DefiLlama.

Cointelegraph attempted to access all social media and blog websites listed on Kokomo Finance’s Linktree page, but all of these links now lead to error pages indicating they have been removed.

Related: 7 DeFi protocol hacks in Feb see $21 million in funds stolen: DefiLlama

Cointelegraph also came across Kokomo Finance’s smart contract audit, which was reviewed and shared by 0xGuard earlier in March.

While most aspects of the audit were passed, “typographical errors” were found, and the owner of the KOKO token was also found to have a one-time ability to mint 45% of the maximum supply to an arbitrary address.

Brooks said Kokomo Finance exploited funds through this method too, however the vast majority came from upgrading the cBTC contract.

He added that CertiK has now seen two incidents of exit scams resulting from the minting method.

Kokomo did not pass all aspects of its smart contract audit, which was reviewed by 0xGuard in March. Source: GitHub

Cointelegraph reached out to 0xGuard for comment but did not receive an immediate response.

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This article has been amended to include comments from Hugh Brooks at 10pm UTC time on April 29.