Protocol logic attacks grow as hackers shift from wallet exploits

Crypto hacks accelerated in July, with protocol exploits once again coming to the forefront. Several protocols were hacked based on smart contract flaws, suggesting AI may be used again to find weak points. 

Protocol exploits and hacks accounted for $57M in losses for July to date. In June, over $75M was stolen from multisig wallets and protocols, based on DeFi Llama data. The past year saw a mix of baseline activity with smaller thefts and the occasional high-profile bridge or protocol hack. 

As Cryptopolitan reported, protocol exploits accounted for one of the biggest cases in the past year, the Kelp DAO hack. Since then, minor DeFi protocols, DEXs and lending pools are still attacked frequently. 

Protocol exploits rise based on logic flaw discoveries

In June and July, protocol logic was the main tool behind recent hacks. Apps for trading, predictions, or DEX had several attack vectors. Those included price oracle manipulation, front-end vulnerabilities, liquidity pool hacks, pricing hacks, and fake minting. 

Hackers also used malicious governance attacks, as in the case of Barn Bridge and the Bonk DAO.

Other attacks included silent auto-approval, flash loans, donation attacks, broken signature verification, and malicious fake mining. 

The recent wave of hacks uses much more varied techniques, suggesting more sophisticated analysis of vulnerabilities. In previous DeFi hacks, the attack points were relatively well-known and affected forked or copied protocols. 

The most recent wave of exploits shows AI may be able to discover even more vulnerabilities in the process of handling permissionless transactions. 

While DeFi and crypto as a whole have slowed down, the hacks raise the issue of the general reliability of on-chain rails. Platforms are pivoting to trading real-world assets, including equities and debt instruments. So far, hacks are mostly used for tokens, which are easy to liquidate. 

As equity trading grows with on-chain protocols, the threat of hacks becomes even more serious. The recent addition of more retail traders with Robinhood’s chain, as well as other RWA markets, suggests protocols must rethink their security and permissionless operations. 

Hacks return to Solana, Arbitrum

Protocol exploits are clustering around the most liquid chains. In July, Solana protocols lost over $21M. 

Arbitrum, one of the most active DeFi networks, lost over $18M in hacks for the month to date. 

Surprisingly, Ethereum lagged with just around $7M in exploits. While Ethereum remains the most liquid network, attackers are targeting other chains, including BNB Chain and Base. 

Base surpassed Ethereum hacks, with over $14M lost in July. Over $36M were hacked from BNB Chain. After the hacks, funds were bridged and mixed on Ethereum. The ease of multi-chain hacks suggests AI has assisted hackers in branching out more easily. Even minor chains and protocols are now seen as low-hanging fruit.

Security analysts still noted that AI is also improving Web3 security. In 2026, protocol hacks are fewer compared to the previous year. This may be due to some Web3 protocols closing altogether, but others may be able to prevent protocol exploits by discovering their weak spots before the hackers. 

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