Cryptocurrency exchange Coinbase has shelled out its largest ever bug bounty payment — a quarter of a million dollars — for what was described as a “market-nuking” security flaw that could have allowed users to sell bitcoins they didn’t own.
Coinbase confirmed the crisis-level security defect was reported by a third-party researcher on February 11 and triggered an emergency incident response that included placing the platform into “cancel-only mode,” a move that disabled all new trades.
The issue was privately reported to Coinbase via HackerOne but not before an anonymous Twitter account warned of the “market-nuking” consequences of the discovery.
A post-mortem note from Coinbase said the root cause of the vulnerability was a missing logic validation check in a Retail Brokerage API endpoint, which allowed a user to submit trades to a specific order book using a mismatched source account.
[ READ: Treasury Sanctions Crypto Exchange in Anti-Ransomware Crackdown ]
Here’s an exclamation of the impact of the vulnerability:
- A user has an account with 100 SHIB, and a second account with 0 BTC.
- The user submits a market order to the BTC-USD order book to sell 100 BTC, but manually edits their API request to specify their SHIB account as the source of funds.
- Here, the validation service would check to determine whether the source account had a sufficient balance to complete the trade, but not whether the source account matched the proposed asset for submitting the trade.
- As a result, a market order to sell 100 BTC on the BTC-USD order book would be entered on the Coinbase Exchange.
“There were mitigating factors that would have limited the impact of this flaw had it been exploited at scale,” the company said, noting that the Coinbase Exchange has automatic price protection circuit breakers and a trade surveillance team that continuously monitors its markets for health and anomalous trading activity.
Coinbase said it corrected the flaw in less than six hours “without any impact to customer funds.”
“[We can] conclusively determine that it has never been maliciously exploited. We have also implemented additional checks to ensure that it cannot happen again,” Coinbase said, noting that it was serious enough to warrant its largest ever bug-bounty payout.
Related: Robinhood Hacked, Millions of Names, Emails Stolen
Related: US Treasury Sanctions Crypto Exchange in Anti-Ransomware Crackdown
Related: Coinbase to Acquire Cryptography Firm Unbound Security