Unleash Protocol Loses $3.9M in Unauthorized Smart Contract Upgrade Attack
Attackers gained multisig control and executed unauthorized contract upgrade to drain wrapped IP tokens, USDC, and ETH before laundering through Tornado Cash.
The decentralized intellectual property platform Unleash Protocol has suffered a devastating security breach, losing approximately $3.9 million worth of cryptocurrency after an attacker executed an unauthorized smart contract upgradeSmart Contract Upgrade🛡️A mechanism using proxy patterns that allows the logic of a deployed smart contract to be modified while preserving its address, storage, and assets.. The incident, which occurred in late December 2024, highlights the persistent vulnerabilities in DeFi governance systems and the critical importance of robust multisig security practices.
According to the team behind the blockchain project, the attacker managed to obtain sufficient signing power to act as an administrator of Unleash's multisig governance system—a security mechanism designed to require multiple parties to approve critical operations. This breach of the governance layer enabled the attacker to bypass the protocol's intended security controls entirely.
How the Attack Unfolded
"Our initial investigation indicates that an externally owned address gained administrative control via Unleash's multisig governance and carried out an unauthorized contract upgrade," the company stated in a public announcement. "This upgrade enabled asset withdrawals that were not approved by the Unleash team and occurred outside our intended governance and operational procedures."
The attack exploited a fundamental weakness in how the protocol's multisig wallet was configured or managed. Multisig wallets are designed to require multiple private keys to authorize transactions, creating a system of checks and balances. However, if an attacker can compromise enough keys or exploitExploit🛡️Code or technique that takes advantage of a vulnerability to cause unintended behavior, such as gaining unauthorized access. weaknesses in the key management process, they can gain full control over the wallet's assets and capabilities.
By performing the unauthorized smart contract upgrade, the attacker unlocked the ability to perform withdrawals from the protocol. Upgradeable smart contracts, while providing flexibility for bug fixes and feature improvements, introduce significant security risks if upgrade permissions are compromised.
Assets Stolen and Financial Impact
Unleash Protocol is described as an operating system for managing intellectual property (IP) by converting it into on-chain assets (tokens) that can be used as collateral within the DeFi ecosystem. The platform provides a monetization layer through smart contracts and automatically distributes licensing and royalty revenue to predefined stakeholders according to on-chain rules.
The attacker leveraged their unauthorized access to steal multiple types of digital assets from the protocol:
Blockchain security experts at PeckShieldAlert, a prominent security firm specializing in cryptocurrency threat detection, report that the unauthorized drain equates to losses of approximately $3.9 million. This figure places the incident among the notable DeFi exploits of 2024, though significantly smaller than some of the year's largest breaches.
Money Laundering Through Tornado Cash
After withdrawing the stolen assets, the attacker moved quickly to obscure the transaction trail. The funds were first bridged via third-party infrastructure and transferred to external addresses to reduce traceability. PeckShieldAlert reports that the attacker has since deposited the stolen amounts into the Tornado Cash cryptocurrency mixing service in the form of 1,337 ETH.
The use of 1,337 ETH (often stylized as "leet" in hacker culture) may be intentional, potentially serving as a signature or taunt from the attacker. This type of deliberate numerical choice has been observed in other high-profile cryptocurrency thefts.
Tornado Cash, which was sanctioned by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) in 2022 and subsequently delisted from various platforms in 2025, has been linked to money laundering activities by North Korean state-sponsored hacking groups, including the notorious Lazarus Group. The service enables users to route cryptocurrency through complex obfuscation mechanisms before withdrawing it to new, unlinkable wallets.
While cryptocurrency mixing services were originally designed to provide transaction privacy on public blockchains—a legitimate privacy concern for many users—they have been extensively abused by cybercriminals to evade law enforcement tracking and asset-freezing efforts. The choice to use a sanctioned service like Tornado Cash significantly complicates any potential recovery of the stolen funds and may indicate the attacker's confidence in evading identification.
Unleash Protocol's Response
In response to the incident, Unleash Protocol has taken several immediate actions to contain the damage and prevent further losses:
The investigation is ongoing, and the team has not yet disclosed specific details about how the attacker compromised the multisig governance system. This information is likely being withheld to avoid providing a roadmap for future attackers and to preserve the integrity of any potential legal proceedings.
Implications for DeFi Security
This incident serves as a stark reminder of the security challenges facing the DeFi ecosystem. Despite the theoretical security benefits of multisig governance systems, their effectiveness depends entirely on proper implementation and key management practices.
Several key security lessons emerge from this breach:
What Users Should Do
If you have interacted with Unleash Protocol or hold any of its tokens, the team advises taking the following precautions:
The Broader DeFi Security Landscape
The Unleash Protocol breach adds to a growing list of DeFi security incidents in 2024. According to blockchain security researchers, DeFi protocols lost billions of dollars to exploits throughout the year, with governance and smart contract vulnerabilities among the most common attack vectors.
The continued use of Tornado Cash by attackers, despite its sanctioned status, demonstrates the persistent challenge of tracing and recovering stolen cryptocurrency. While law enforcement agencies have made significant strides in blockchain forensics, determined attackers with access to mixing services can still effectively launder stolen funds.
For users and investors in the DeFi space, this incident underscores the importance of due diligence. Before interacting with any DeFi protocol, users should research the project's security practices, audit history, governance structure, and the team's track record. Understanding how a protocol's multisig and upgrade mechanisms work can help users make more informed decisions about the risks they're willing to accept.
As the investigation continues, the blockchain security community will be watching closely to understand exactly how the attacker compromised Unleash Protocol's governance system. The lessons learned from this breach will hopefully inform better security practices across the DeFi ecosystem, though the $3.9 million in stolen funds serves as yet another expensive reminder of the risks inherent in decentralized finance.
Learn More
To better understand the security concepts discussed in this article, explore our educational resources: