Defrost Finance breaks silence on ‘exit scam’ accusations, denies rug pull

Defrost Finance, the decentralized trading platform that suffered a $12 million exploit leading up to Christmas, has denied allegations that it had “rugged” its users as part of an elaborate “exit scam.”

On Dec. 23, the platform announced it suffered a flash loan attack, leading to the draining of user funds from its V2 protocol. One day later, another incident saw a hacker steal the admin key for a second “much larger” attack on the V1 protocol.

It’s understood the attacker(s) conducted the flash loan attack by adding a fake collateral token and a malicious price oracle to liquidate users.

Observers, including blockchain security firms Peckshield and CertiK, as well as asset management platform DeFiYield, have suggested based on “community intel” that members of the team may have been behind the “exit scam” — given the fact that an admin key was required to perpetrate the exploit.

However, in an exclusive statement to Cointelegraph on Dec. 28, the team behind Defrost Finance broke its silence on the rug-pull accusations, stating:

“We deny the accusations that the team rugged users. A compromised key does not equate to a rugpull, as much as the episode may raise doubts among the public.”

Defrost made two key arguments to deny its involvement.

Firstly, Defrost argued that if they had planned to orchestrate a rug pull, they would’ve done it months ago when its total value locked (TVL) neared $200 million.

According to DefiLlama, Defrost Finance’s TVL had fallen to just $13.14 million on Dec. 23, the day of the first attack.

“Anyone behind a rugpull would have probably defrauded investors when our TVL was 15 times what it is today.”

Secondly, Defrost argued that if they had been the perpetrators they would have “fled” long ago, which they haven’t done.

1/4#Defrost has managed to recover all funds taken during the the V1 hack.This is how we will refund the investors.A thread

— Defrost Finance (@Defrost_Finance) December 27, 2022

“[Anyone] anticipating the inevitable attention from the crypto community would have fled long ago. Yet here we are, working to get the funds back to their rightful owners,” it said.

Defrost Finance’s statement came just hours after decentralized finance investment platform DeFiYield again accused Defrost Finance of “rug pulling” its users in a Medium blog post on Dec. 27.

DeFiYield pointed to on-chain data that it claimed suggested the creator of the multi-sig wallet was the same address that requested and then later approved the transactions which inserted the malicious source oracle that liquidated users.

We've done an Exclusive On-Chain Investigation on the @Defrost_Finance's $12M "Exploit"We found the connection between Defrost Finance and another project that has Rug Pulled $7M in 2021 - @Phoenix__PHXThey have the same developers.EXPOSING @Defrost_Finance LIES 1/18 pic.twitter.com/PfGyVNsoQ4

— DeFiYield ️ Web 3 Security (@DefiyieldSec) December 27, 2022

It also alleged the developers behind Defrost Finance were the same as those of Pheonix Finance (FinNexus) which was exploited for $7.6 million in May 2021 in what some have also speculated was an “inside job.”

Related: Here's how Defrost Finance plans to refund users following $12M hack

Defrost said it regrets being unable to share more details about the attack, as its priority has been helping users retrieve their funds.

"There are several issues that we would like to address in recent reports concerning Defrost Finance. We regret we cannot get deep enough into some details — but surely the community will understand this is a sensitive matter and our priority must be to help our users retrieve their funds. All other concerns are secondary to this,” it said.

It's certainly unhappy about the allegations and earlier today it warned members of its Telegram group that it will ban members that attempt to perpetrate the “false narrative” that the Defrost team is responsible for the recent attacks.

“At this point, it’s not conducive to moving forward to continue allow [sic] the public chats to operate like the Wild Wild West. Will be implementing stricter protocols.”

On Dec. 26, Defrost announced on Twitter it had managed to recover all the funds taken in the V1 hack, sharing in a post on Medium hours later it has begun the process of returning funds to affected users.

“This will take a little time since we need to map who had what and where, but the wheels are turning fast and the entire process will be managed through smart contracts. It will be fully transparent and fairly swift,” Defrost told Cointelegraph in its recent statement.

No word was given about the V2 protocol as of yet, however.