Cetus recovered stolen funds "Decentralization" concessions for user interests

Jessy, Golden Finance

On May 22, $223 million in funds were stolen from Sui’s eco-DEX Cetus. Of this, only $60 million was exchanged for ETH through the cross-chain bridge and went into the hackers’ pockets, while the remaining $162 million was frozen by the Sui Foundation coordination node.

On May 27, the community voting started, “to decide whether to implement the protocol upgrade to recover the funds frozen in accounts controlled by hackers.” The protocol upgrade was ultimately realized, and 162 million funds were successfully recovered.

On the one hand, it recovered most of the funds to protect the interests of the stolen users, and on the other hand, the way to recover the assets was to force the modification of asset ownership through node consensus, which was the first time to realize the “transfer of assets without private keys” at the public chain layer.

In the face of users’ interests, this “bold” operation that goes against the “spirit of decentralization” was simply overlooked.

How is asset transfer without private keys achieved?

On May 22, Sui ecosystem DEX Cetus was hacked due to a low-level coding error, resulting in a loss of $223 million. After the incident, $162 million of the stolen funds were frozen by the Sui Foundation coordinating with the verification nodes.

On May 27, the Sui Foundation promoted a community vote aimed at deciding whether to implement a protocol upgrade to recover funds frozen in accounts controlled by hackers. Ultimately, within 48 hours, 114 nodes participated, with 103 casting votes: 99 votes in favor, 2 against, and 2 abstentions, resulting in a proposal passed with a high approval rate of 90.9%.

The proposal also indicates an upgrade to the Sui protocol, which will allow a specific address to conduct two transactions on behalf of the hacker’s address to facilitate the recovery of funds. These transactions will be designed and announced after the recovery address is finalized. The recovered assets will be held in a multi-signature wallet controlled by trusted auditors OtterSec from Cetus, the Sui Foundation, and the Sui community.

At the protocol upgrade level, the ‘address aliasing’ feature is introduced, specifically, rules are defined in advance at the protocol layer: a specific governance action is disguised as a “legitimate signature of a hacker account”, and then the validator recognizes the forged signature after the upgrade, legitimizing the transfer of frozen funds. The above makes it possible to force the modification of asset ownership through node consensus without touching the private key (similar to the transfer of funds after the central bank freezes the bank account).

So how were the earliest frozen assets implemented? Sui itself supports the Deny list and Regulated tokens functionalities, and this time it directly called the freeze interface to lock the hacker’s address.

The technical risks of left-behind strong power interventions

Although this move recovers most of the frozen assets, it is also worrying, because the upgrade of the protocol has forced the modification of the ownership of assets through node consensus, and it also indicates that Sui officials can replace any address for signature, so as to transfer the assets inside.

The constraint on whether the Sui official can do this is not the smart contract code, but the voting rights of the nodes. And who has control over the results of the node votes? It’s simply the large nodes that are capital-controlled by the foundation! This means that the stakeholders of the Sui official hold the most significant voice; even if there is voting, it’s merely a formality.

The user’s private key is no longer an absolute proof of control over assets; as long as the consensus of the nodes agrees, the protocol layer can directly override the permissions of the private key.

On the other hand, this achieves an efficient asset recovery and rapid freezing of assets, thanks to the built-in regulatory functions of Sui, which can quickly stop losses. The voting was completed within 48 hours, and the protocol upgrade was implemented.

However, in the author’s view, the address aliasing feature has set a dangerous precedent - the protocol layer can fabricate “legitimate operations” for any address, which lays the technical groundwork for authoritarian intervention.

This series of operations to recover funds by Sui is merely a decision made from the perspective of user interests when user benefits conflict with the principles of decentralization. As for whether it violates the principle of decentralization, it seems to be unimportant for both users and Sui, after all, when questioned, they can respond that it was a “vote” decision.