Charles Hoskinson Raises Alarm Over EIP-7702 as Binance Wallet Breach Analyzed

Warning from Charles Hoskinson

Charles Hoskinson, the founder of Cardano, has issued a stark warning regarding potentially hazardous coding practices linked to Ethereum's EIP-7702 delegation feature. This alert comes in light of recent investigations that indicate this feature may have played a role in facilitating a significant breach of a Binance hot wallet.

Analysis of the Breach

In a recent post on X (formerly Twitter), Hoskinson drew attention to an analysis shared by CyberSatoshi, which consisted of reconstructed bytecode for what is being termed a Binance EIP-7702 sweeper. The analysis suggested that the smart contract in question was specifically designed to function with Binance’s system. While Hoskinson highlighted the analysis, he did not specify which aspects he concurred with or identify a particular defect in the protocol.

CyberSatoshi pointed out two prominent security concerns related to the event: how the attacker was able to gain authorization to access the wallet and the subsequent actions made possible by Ethereum's delegation feature.

According to their examination, the contract allowed for the sweeping of most funds while deliberately leaving behind 1 ETH. The intention here seemed to be to avoid triggering automated alerts within Binance’s hot-wallet monitoring system that would typically activate due to low gas levels.

Mechanism of the Attack

The analysis detailed a mechanism that enabled the contract to iterate through token balances, continuing operations despite certain transactions failing due to various reasons, such as interactions with blacklisted tokens. This operation allegedly permitted the compromised wallet to access an external vault containing $823 million in USDC, thanks to a specific execution function that recognized the Binance 14 wallet as its controller.

EIP-7702 introduces a transaction model that allows an externally owned account to delegate the execution of operations to smart contracts at different addresses. Typically, such an account requires a cryptographic signature from its private key for transactions, but delegation enables this account to carry out smart contract actions within its own jurisdiction while allowing functionalities like the batching of operations and payment of transaction fees by another account.

CyberSatoshi emphasized the need for robust security measures, stating that for the unauthorized actions to have taken place, the attacker would have either needed raw access to the private key or unrestricted authorization within Binance 14’s security framework.

However, the source of this compromised access was not detailed within the message. The analysis further described the attacker's strategy of submitting a series of pre-signed authorizations, exploiting the sequential nonce system to bypass checks on authorization until valid entries were executed. CyberSatoshi contended that this technique compressed the transfers into a singular, swift operation, thereby minimizing the window of opportunity for intervention by Binance's security measures, which may have otherwise detected the intrusion after a limited number of transactions.

Implications of EIP-7702

The authors of EIP-7702 explicitly caution that such delegated code provides virtually unrestricted access to the associated account, underscoring the importance of meticulous auditing. The protocol mandates that all delegate contracts incorporate specific protective measures such as replay prevention and comprehensive signature coverage for transactions. Without proper implementation, delegation could grant an attacker significant control over the account.

Lastly, it's worth noting that delegation persists post-transaction, and failures in execution do not annul earlier delegations. However, there exists a mechanism through which valid authorizations can clear delegation by pointing to a null address. As discussions surrounding the implications of EIP-7702 continue, the potential for misuse remains a central concern in the Ethereum community.