Summary
This proposal requests voters to vote to support an emergency code upgrade that will enable the locking of approximately $2m of stolen funds from investors and users of Terraport that are recorded in tracked wallets which have been independently confirmed, thus this being a step closer to helping investors get their funds returned.
Binance are coordinating the investigation into this attack with the authorities. Binance, Simpleswap, MEXC and Kucoin have already collectively frozen approximately ÂŁ1m of funds in wallets off chain and we expect them to be returned in due course.
By locking these funds it prevents the thieves from moving them off chain and the risk of them being permanently lost. Every minute these are not locked gives the attackers a chance to move them. It also tells criminals that we will stand up for what is right and not sit back and let them get away with stolen funds when it is in our power to prevent this.
If the vote is passed and the funds are locked, we will then consult with the community and present a proposal on how to go about returning the funds to the Terraport liquidity pool. We have chosen to use separate proposals to prevent any lack of focus on this specific proposal which is itself an unprecedented emergency measure for Terra Classic.
Background
On the 10th of April Terraport was the victim of an attack. This attack resulted in the liquidity pool being drained of approximately $4m in value of LUNC, TERRA and USTC combined. This pool was comprised of investor funds. This attack was investigated in a collaborative effort with enforcement authorities and major crypto stakeholders and coordinated by Binance forensic experts. In the UK TerraCVita reported this crime to the police and are communicating with the NFIB.
The investigation team (independent of TerraCVita) consider the group behind the attack is an international group with a long pedigree of attacks across crypto and is omnipresent. TerraCVita considers this not just an attack on Terraport, but an attack on the whole Terra Classic community.
Emergency Measures
CEXâs have cooperated with the investigation team and also the enforcing authorities and have frozen wallets to prevent off chain funds being moved to prevent the attackers benefitting from their ill-gotten gains. These funds are expected to be returned in due course. This therefore leaves the on chain stolen funds that are freely circulating and we believe the attackers are working on finding a way to take them off chain. We believe that it is a matter of time before they are lost for good and this could be a matter of hours or days.
Solution to save on chain stolen funds
The investigation team strongly advised TerraCVita not to publicise any attempts to save any of the stolen funds, because this will prompt the attackers to expedite their efforts and simply fore warn them. Hence it is only now this approach is being publicised for the first time. TerraCVita have had the new L1 code created to save the funds prepared for a few days and have been discreetly consulting with community stakeholder and with validators in a âvalidator discordâ that is used to seek consensus on issues of security concerning the chain. Typically, this approach is used for code vulnerabilities.
On a community focussed volunteer basis, Frag and Vinh have created, reviewed and tested the code, and this has been done outside of their âCommunity Pool funded hoursâ as they wanted to show willing to work with the community to solve community problems. We are not the only team to have proposed this approach with other validator teams and developers independently approaching us with this solution.
A precedent situation
We are in a unique situation. We have the ability just like the CEXâs to protect the community from thieves, and to say to the criminal world, we will not turn a blind eye to criminals, and we will not allow criminals to benefit from their activities. We are also in a changing Defi and blockchain landscape where pressures to KYC users and increasing pressure for legislation are upon us. We have an opportunity to showcase to traditional finance and law enforcement stakeholders that the block chain can keep its own house in order and is actually more effective than traditional finance at protecting consumers and fighting crime.
If the community and validators approve this, we believe this will be a good marketing opportunity for our chain and give the crypto users increased confidence in the robustness of how Terra Classic is governed and how much support we have for the community and the law.
TerraCVita
As a developer group TerraCVita has free of charge saved investors hundreds of thousands in stolen funds through preventing undelegation scams, have helped validators get established and also helped dApps get a foot hold towards sustainability. We have never received community pool funding and Terraport is privately funded, and we have always stood up against misuse of funds. We also run a validator and market TerraCasino one of the largest dApps in crypto helping to burn millions in LUNC.
We are committed to protecting and supporting the community and those positively contributing to the ecosystem and helping to revive Terra Classic and Terraport is designed to aid deliver this. As a Decentralised exchange it allows trading of LUNC pairs, which we intend to increase to be the largest provider of LUNC trading pairs and to draw investment into LUNC, and through providing a launchpad for projects we aim to help as many as possible launch sustainably bringing life to Terra Classic. We would like to consider this passage demonstrates that TerraCVita has a track record as a rock and provider to the chain, however now we reach out humbly to the community we serve for assistance which we hope we have earned.
Preventative Measures
Since the attack we have created a security/compliance position, we have reviewed KYC of all code contributors, independent developers have conducted an initial status review of our code and we have hired CertiK to conduct an additional in depth third party review of all current code used in Terraport and we intend to use them for all future upgrades. The authorised Terraport code was not the attack vector in this instance. We are also lobbying to improve measures across the whole of crypto to improve measures to reduce the likelihood of successful criminal attacks.
Once funds are secured this will give us time to propose an acceptable way to return the funds and we suggest a full proposal through agora to give the community a chance to be consulted and to vote on what happens to these funds.
Proposal
The proposed code patch is available for perusal by contacting the Joint L1 task force. To reduce the chance of forewarning the attackers the list of addresses is kept current and confidential because once the new binary is unanimously deployed, it is very hard to change again. The blacklist addresses will be hardcoded into source code so that no change to store is made. Due to this, an upgrade proposal is not required. We will minimise the time on Agora purely because the longer this is advertised the greater the chance the attackers will escape with the funds. Time is absolutely of the essence.
I hope you will agree that this is an acceptable solution and vote âyesâ to agree to the security patch and to save the community investor funds. If there is a vote âyesâ, all running nodes must change to the new binary instantly at the end of the voting period / when deployed.
Any other vote will increase the chances of the stolen funds being lost forever and will in effect turn a blind eye to criminal activity and reduce the likelihood of LUNC recovery.
