Bunni DEX Breached Highlights DeFi's Security Flaws

Decentralized exchange Bunni has suffered a $2.3 million exploit on the Ethereum blockchain, exposing persistent vulnerabilities in DeFi protocols and underscoring renewed concerns around smart contract security.

The breach, detected by blockchain security firm Blocksec Phalcon, occurred on Tuesday and involved unauthorized access to Bunni’s Ethereum-based smart contracts.

While the exact method used by attackers is still under investigation, Etherscan data shows that stolen funds were siphoned to the address holding $1.33 million in USDC and $1.04 million in USDt.

In response to the incident, Bunni has promptly paused all smart contract functions across its supported networks and announced on X that a full investigation is underway.

In the wake of the exploit, Michael Bentley, Co-founder and CEO of Euler Labs, advised users to remove their funds from Bunni immediately, clarifying that while Bunni rebalances funds with Euler, the latter remains unaffected and secure.

The protocol emphasized user safety as its top priority and pledged to provide further updates as more information becomes available.

How Bunni Fell For The Hack

While investigations are still inconclusive, early analysis have already pointed to several flaws that had made Bunni vulnerable to hackers.

As Bunni is built on top of Uniswap v4, it uses a customised mechanism called Liquidity Distribution functions instead of Uniswap's default logic. This mechanism allows Bunni to optimize liquidity allocation across price ranges, aiming to increase returns for liquidity providers.

However, Victor Tran, the co-founder of Kybernetwork, also pointed out that this kind of system also allowed the attacker to manipulate the LDF curve by executing trades of specific sizes that triggered faulty rebalancing logic.

Tran exposed the possible scenario, saying

"Exploiter figured out they could manipulate this LDF by making trades of very specific sizes. These carefully chosen amounts caused the rebalancing calculation to break, giving wrong results for how much each LP shares should own."

A Massive Loophole In DEX Security?

Another one of Bunni DEX's biggest weaknesses is also how the platform relies extensively on smart contract automation for its day to day functions.

DeFi’s heavy reliance on smart contracts has made robust security measures a perpetual concern. As blockchain security auditor CertiK reports, vulnerabilities in on-chain code, underlying blockchain infrastructure, or even programming language flaws led to more than $686 million in losses across DeFi protocols in 2023 alone.

Experts from Apex, a derivatives DEX, recommend that users interact only with contracts that have undergone audits by reputable firms and limit approval permissions to reduce wallet-draining risks.

These proactive steps are crucial as DeFi continues to expand and attract both users—and opportunistic attackers.

Patching Up The Holes In DeFi's Security

The Bunni breach is a stark reminder that while DeFi innovation is accelerating, security standards must evolve just as quickly.

In my view, the industry’s long-term success will hinge on prioritizing rigorous code audits, transparent disclosures, and a relentless focus on user protection.

As DeFi projects grow more interconnected, a single vulnerability can have cascading consequences, underscoring the urgent need for continual security upgrades to maintain trust and credibility in the sector.