How an attacker spent just $1,808 to hold an entire crypto project hostage. ‘The proposal is clearly an attack’

Just 11 minutes and $1,808.

That’s how much time and money an exploiter spent on creating a governance proposal to hand over the entire Moonwell protocol.

Moonwell is a multichain lending protocol that provides liquidity for the Moonbeam and Moonriver ecosystems. It has around $85 million in total value locked, according to DefiLlama. Moonbeam is a parachain network on Polkadot, and Moonriver is the equivalent network on Polkadot’s developer network Kusama.

If the attacker’s proposal is successful, the exploiter would gain total control over key components of the lending protocol, including its seven markets and the protocol’s core smart contract.

It would also allow the attacker to drain more than $1 million in user funds, according to blockchain intelligence firm Blockful.

Voting on the proposal ends on Friday. Holders of MFAM, the governance token for Moonwell, can still vote against the proposal to block it.

The proposal’s voting activity shows that 68% of votes cast are against it as of Thursday.

Blockful, however, warns that the exploiter may have additional unidentified wallets holding MFAM that may be used.

Instead, Blockful recommends that Moonwell’s multisig signers act to move admin powers away from the attackers, a defensive move called the “Break Glass Guardian,” according to forum posts.

“Since the attacker can still have hidden wallets, ready to vote in the last block in case of opposition, we recommend the core team use the Guardian to guarantee user funds are safe,” the firm wrote on Thursday.

DAO governance

Governing crypto protocols via decentralised communities has long been a painstaking experiment.

In 2024, a group of Compound Finance investors, led by the pseudonymous user Humpy, accumulated enough Compound governance tokens to force through a proposal that would have moved some $24 million from the project’s treasury into a private vault.

Humpy ultimately reached a truce and returned the tokens.

More recently, a dispute within the Aave community shed another light on what a decentralised autonomous organisation actually owns.

In December, it was found that fees generated by an integration with a decentralised exchange called CoW Swap were being routed directly to Aave Labs, a decision not approved by the lending protocol’s DAO.

The Moonwell debacle reveals yet another attack surface: using cheap tokens to manage governance.

Attack analysis

The Moonwell attacker purchased 40 million MFAM tokens to make a proposal, and subsequently voted the proposal past quorum.

With the token price at $0.000025 before the purchase, the attacker spent roughly $1,800 to present “MIP-R39: Protocol Recovery - Admin Migration” on Tuesday.

The exploiter used a smart contract to purchase the tokens. Blockful also indicated that the smart contract contained malicious code that would automate the steps needed to drain the protocol’s liquidity.

“This proposal is clearly an attack,” the intelligence firm wrote on Wednesday.

“The proposal contract that will get ownership of the markets in case this proposal gets executed already includes the transactions necessary to exploit them.”

Neither Blockful nor Moonwell immediately responded to requests for comment.

Liam Kelly is DL News’ Berlin-based DeFi correspondent. Have a tip? Get in touch at liam@dlnews.com.