The developers behind optimism-based lending protocol Kokomo Finance appeared to pull off an exit scam over the weekend after manipulating tokens on the protocol to effectively steal $4 million in user funds.
An exit scam is said to occur when developers or promoters of a crypto project market what appears to be a legitimate looking project to investors only to extract liquidity and wipe all online or offline presence once a significant sum of money has been attracted to that project.
Launched on March 25, Kokomo Finance allowed users to trade, borrow, and lend wrapped Bitcoin (BTC), Ether (ETH), Tether (USDT), USD Coin (USDC), and Dai (DAI). It quickly gained sympathy among Optimism users.
On Sunday evening, Kokomo developers deployed an attack contract cBTC from the main address of KOKO, Kokomo’s native token. They then adjusted reward speeds, paused a lending feature, and created a malicious contract to interact with the rest of the protocol, security firm CertiK said.
cBTC is a wrapped Bitcoin derivative issued on the Ethereum network. The issuance of this document was ultimately used to trick the Protocol into believing it had more liquidity when it didn’t have it.
Another developer address was then used to authorize a malicious transfer of over 7000 Sonne Wrapped Bitcoin, another Bitcoin derivative token on Ethereum. These tokens were then used to exchange all of the user-provided liquidity of over $4 million to Kokomo.
Social media accounts and the Kokomo website were quickly deleted as a result and became unavailable in the Asian morning hours.
Meanwhile, KOKO tokens fell 97%, wiping out almost all value for holders.
The exit scam was the latest in a series of growing attacks and exploits in the crypto market. Earlier this month, there was a $200 million exploit by Euler Finance.
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