Polkadot lost $1.38 million after hacker exploited security flaw fixed four months earlier
The attacker resumed on October 26 with its own relayer before the XCM fix; a later upgrade corrected supply without changing balances. Read the full story on CryptoSlateUnderstand the crypto stories that matter and what to watch next. Get The Catalyst in your inbox
Polkadot's Treasury lost $1.38 million after an attacker exploited a vulnerability developers had fixed months before its new stablecoin launched.
In a Nov. 2 incident report, Parity Technologies, a blockchain infrastructure firm focused on the Polkadot and Kusama ecosystems, revealed that the security flaw had been identified and corrected in its codebase in June but never reached the affected production systems before the Oct. 24-26 attack.
The disclosure exposes a security breakdown surrounding dotUSD, Polkadot's decentralized stablecoin, which launched in October under the governance of the network's decentralized autonomous organization (DAO).
Unlike stablecoins issued by private companies, dotUSD was designed to operate without a centralized issuer, with DOT holders governing decisions through the network's OpenGov system.
However, the vulnerability predated the stablecoin's introduction. Parity initially classified the bug as medium severity because its assessment did not account for how the flaw could interact with dotUSD, which had not yet launched.
The developer later upgraded the vulnerability to critical after the attack exposed its financial consequences.
The breach also followed a public disclosure on Oct. 20, when the security researcher who originally reported the vulnerability posted a forum comment referencing the code fix.
Parity said the researcher removed the comment after being notified that it violated the company's bug bounty rules. The developer believes the disclosure may have given attackers enough information to identify and exploit the vulnerability.
The attacker ultimately manipulated Polkadot Asset Hub's cross-chain messaging system to reduce dotUSD's recorded supply without removing tokens from users' accounts.
That discrepancy distorted prices in the network's DOT/dotUSD liquidity pool, allowing traders to exchange dotUSD for DOT at artificial rates.
The Treasury, which was the pool's sole liquidity provider, absorbed approximately $1.381 million in losses.
Parity stressed that no users lost funds and dotUSD remained fully backed by USDT. However, the company could not establish whether the person who exploited the vulnerability also profited from the subsequent arbitrage trades.