Four_Meme Suffers a Hack Targeting Uniswap V3's Liquidity Pools, Losing $183K

The Four_Meme project recently suffered a serious breach in the cryptocurrency space, leading to an estimated loss of $183,000.

Four_Meme project recently encountered a serious breach in the cryptocurrency space, leading to an estimated loss of $183,000. The attack targeted a vulnerability in the Uniswap V3 mechanism, which allows users to create liquidity pools and set prices in advance. The assailant exploited this oversight in a series of well-planned steps, ultimately causing significant financial damage to the project.

How the Attack Unfolded

The method of attack hinged on a flaw in the Four_Meme contract’s handling of liquidity and token prices. The project’s tokens were initially acquired by the attacker at a very low price. They were purchased before any liquidity was added to PancakeSwap, a decentralized exchange where our tokens trade. This gave the attacker two advantages. First, they obtained our tokens at a ridiculously low price. Second, had they held onto those tokens, they would have likely netted a much higher price after liquidity got added to the decentralized exchange.

In the next step, the attack moved on to creating a trading pair pool on PancakeSwap in a preemptive way. The attacker took the low-price tokens and paired them with WBNB (Wrapped Binance Coin). Yet there was one important detail in this step: the price of the token was set at an extraordinarily high rate. This price manipulation was not an oversight. It was a calculated move that took advantage of the way Uniswap V3 allows for the creation of liquidity pools at predetermined prices.

Once they had set up the costly trading pair, the attacker bided their time and let the project in question launch. When the liquidity was injected into the PancakeSwap pool, the attacker struck. Using a bot, they added more liquidity to the pool, but at a much higher price, thus pushing the price of the token higher, and we do mean much higher.

The last part of the step was when the attacker disposed of the tokens they had acquired at the low price, now at the inflated price they had set earlier. They sold off the tokens and profited substantially from the difference between the low acquisition price and the inflated sale price.

Exploiting the Uniswap V3 Mechanism

This attack was directed at the Uniswap V3 protocol and how it operates. Uniswap V3 provides a nifty feature that allows liquidity providers (LPs) to specify custom price ranges for the pools they’re providing liquidity to. This is good and well, as it allows LPs to concentrate their capital in the price ranges that are most conducive to their business. However, this feature also allows an LP with bad intentions (like our friend “0x8aa”) to create a price range that’s super conducive to hoodwinking token buyers and sellers—to create a setup that allows them to peg a token price at some artificial range, for instance.

In this instance, the mechanism was fully exploited by the attacker, who set up a not-so-simple scenario that artfully created a token price that was totally inflated. The price was artificially pumped up—via a setup that was not quite as simple as it seemed—before any of the project’s liquidity was made available. By the time the actual liquidity was added and the price “settled,” the attackers had already made off with profits amounting to 100 percent of the artificially boosted price of the token.

This attack type is especially worrisome for projects and investors, revealing design and implementation weaknesses in liquidity pools on decentralized exchanges such as PancakeSwap. These platforms may allow for decentralized trading opportunities, but they also present new risks, especially when the protocols that underlie them fail to mitigate the possibility of price manipulation.

Four_Meme Attack Highlights DeFi Vulnerabilities

The Four_Meme attack is not an isolated incident but part of a larger trend in which decentralized protocols are being targeted for financial gain. As DeFi platforms achieve greater traction, they have become enticing targets for malicious actors who are looking to exploit any vulnerability, whether that be a smart contract, liquidity pool setup, or price setting mechanism.

The Four_Meme team could take the recent attack on their project’s smart contract as a wake-up call to rethink not just their management of liquidity pools but also, and more importantly, their security protocols in general. If the smart contract for a project can be hacked, then the project itself can be said to have a security hole as large as the one in the National Security Agency’s Fort Meade, Maryland, headquarters that was famously penetrated by a couple of high school kids in 1999.

The DeFi space keeps evolving, and projects and investors alike need to be on their toes regarding the potential system vulnerabilities. The Four_Meme attack serves as a costly reminder that a single misstep in managing liquidity and price settings can yield significant losses. This incident also underscores that, in the fast-moving world of cryptocurrency, security must always be front of mind and never an afterthought.