North Korea's Cryptocurrency Hacking Strategy Expands, Targeting DeFi

Less than three weeks after North Korea-linked hackers used social engineering to breach crypto trading firm Drift, hackers with ties to the nation have carried out another major exploit, this time on Kelp, a restaking protocol integrated into LayerZero's cross-chain infrastructure. This attack suggests an evolution in North Korea-linked hackers' tactics, moving beyond exploiting bugs or stolen credentials to manipulating the fundamental assumptions underlying decentralized systems. Combined, these incidents point to a more organized effort by North Korea to hijack crypto sector funds, rather than isolated breaches. According to Alexander Urbelis, chief information security officer and general counsel at ENS Labs, 'This is not a series of incidents; it is a cadence. You cannot patch your way out of a procurement schedule.' More than $500 million was siphoned off across the Drift and Kelp exploits in just over two weeks. The Kelp breach did not involve breaking encryption or cracking keys but rather manipulating the data fed into the system, forcing it to rely on compromised inputs and approve non-existent transactions. 'The security failure is simple: a signed lie is still a lie,' Urbelis said. 'Signatures guarantee authorship; they do not guarantee truth.' This exploit highlights the issue of relying on a single verifier to approve cross-chain messages, a configuration choice that removes a critical safety layer. In response, LayerZero has recommended using multiple independent verifiers, akin to requiring multiple signatures on a bank transfer. However, some argue that LayerZero's default setup was to have a single verifier, and the issue lies in shipping unsafe configurations as options. The fallout from the Kelp exploit has extended beyond the platform, affecting lending platforms like Aave that accepted impacted assets as collateral, turning a single exploit into a broader stress event. 'These assets are a chain of IOUs,' said David Schwed, COO of blockchain security firm SVRN. 'And the chain is only as strong as the controls on each link.' When one link breaks, others are affected. The attack also reveals a gap between the marketing of decentralization and its actual implementation. 'A single verifier is not decentralized,' Schwed said. 'It’s a centralized decentralized verifier.' Urbelis adds, 'Decentralization is not a property a system has. It is a series of choices. And the stack is only as strong as its most centralized layer.' This means even seemingly decentralized systems can have weak points, particularly in less visible layers like data providers or infrastructure, which are increasingly the focus of attackers. The targeting of cross-chain and restaking infrastructure by Lazarus, a group linked to North Korea, underscores this shift. These layers are critical, complex, and often overlooked, making them attractive targets. The recent wave of crypto hacks indicates a move towards targeting the industry's underlying infrastructure, the 'plumbing' that connects everything together but is harder to monitor and easier to misconfigure. As attackers adapt, the biggest risk may not be unknown vulnerabilities but known ones that are not fully addressed. The Kelp exploit did not introduce a new kind of weakness but showed how exposed the ecosystem remains to familiar ones, especially when security is treated as a recommendation rather than a requirement.