LayerZero Centralization Risk

Few months ago we started releasing reports on the decentralization of infrastructure protocols which DeFi protocols rely upon as dependencies. Today we are releasing a report on the centralization risk of protocols integrating LayerZero. In this blog article we demonstrate a proof of concept with a link to a repository on how a project that is built on top of LayerZero can be compromised by centralizing the verifier set within LayerZero configurations of a protocol. This impacts a single protocol as LayerZero popularized the isolated security compared to the shared security of canonical bridges. We also referenced LayerZero in one of our existing reports and assess Maverick V2 with our analysis derived from the PoC and the infrastructure risk report.

At DeFiScan we push for transparency and inform the ecosystem on centralization risks of DeFi projects by exposing upgradeability and dependencies in the smart contract architecture of DeFi protocols.

LayerZero

LayerZero is a cross-chain messaging protocol that enables the transfer of value and data between different blockchains. It is composed of a few building blocks. To be specific, let's say we have Ethereum Mainnet and Arbitrum as our two chains. On each chain, we have an endpoint contract that acts as entry gate for cross-chain communication.

As an example, we analyse a protocol that is built on top of LayerZero and our protocol has a contract on each chain, connected to the chain's endpoint contract. If users want to transfer value from Ethereum Mainnet to Arbitrum, our smart contract on Ethereum Mainnet will call the endpoint contract on Ethereum Mainnet and if our contract is a token for example it either burns the tokens or locks it on Ethereum Mainnet.

The call from our token contract to the endpoint contract will emit an event that is picked up by our verifier network or the default verifier network configured by LayerZero if none has been specified by the protocol. These configured verifier networks run offchain algorithms that listen to these blockchain emitted events and verify the events. Each verifier network, if they deem the transaction as valid, will call on the destination network (here Arbitrum) the receiver library and send a transaction to mark the message as valid (for reference, we use this in step 3 maliciousily). This verification includes the details of the source and destination of the message, and the payload that has to be executed on the destination network. Crucially, the validator network is trusted to report the information accurately, there is no cryptographic primitives that bind the transaction on the source chain to the message sent by the validator network on the destination chain. In a next step, if all required verifiers have verified the message, the verification can be committed. Once comitted, the message is executable on the destination network. Any actor can call the endpoint contract on Arbitrum to execute the message, which calls our token contract with the verified payload, and, for example, mints an equivalent amount of tokens that were locked on Ethereum Mainnet.

Example Transcaction bridging from Ethereum Sepolia to Arbitrum Sepolia

Send call on OFT (Mainnet Sepolia Tx):

https://sepolia.etherscan.io/tx/0xc4fc209f2c778c9609f4ecd85131f778b11e03e6866696cc259e6f3275b1fd26

execute302 call (Arbitrum Sepolia Tx):

https://sepolia.arbiscan.io/tx/0x9a3c2b7dc6212ca62acbe44d33e958ffc82e67955770c0a5acab9d65b3fd1fab

Upgradeability within LayerZero

The configuration of the verifier set within LayerZero is upgradeable. This means that the verifier set can be changed by the protocol that uses and is built on top of LayerZero.

Important to note is that, even though LayerZero is a dependency for a project, the permission to update the verifier set lies within the protocol's permission owners, not in the dependency (LayerZero's multisig) - unless the protocol uses the default settings.

Proof of Concept

In the upcoming sections we will show a proof of concept on how a project that is built on top of LayerZero can be compromised by centralizing the verifier set within LayerZero configurations of a protocol.

In LayerZero each project either relies on the default configuration or can configure their own verifier set.

The default configuration is a set of verifiers that are configured by the multisig with the following address 0xBe010A7e3686FdF65E93344ab664D065A0B02478, which is controlled by LayerZero.

Step 1

The ability to update the verifier set is owned by the protocol. If the owner account (whether a single EOA or a multisig) is compromised, an attacker could exploit that power.

In our model the attacker first takes control of the owner account and, to make the PoC easier to follow, transfers contract ownership to an attacker-created EOA.

Reference transactions:

transfer ownership: 0x4194774aef7111988eeb6c1ca062097ff553669302f5c825f527232aa8721989 set delegate: 0x43b66ae30b6b366be3d0048bd2777938cba5eecc73f4e357fd3a7869fedbdb3f

Step 2

Next, the attacker sets the configuration within an endpoint on a chain he or she wants to exploit. For example this could be Ethereum Mainnet.

The verifier set can be changed to a set of verifiers that are controlled by the attacker (the array requiredDVNs just holds one address, requiredDVNCount is one). This could be simply an EOA which crafts a payload that the attacker wants to be executed, verifies this message and commits it to the destination chain. With a single required verifier and minimal confirmations required the attack can happen almost instantly. If the integrating contract is a token for example, the attacker could simply mint or unlock tokens on any of the configured blockchains.

    UlnConfig memory uln = UlnConfig({
        confirmations: 1, // minimum block confirmations required on A before sending to B
        requiredDVNCount: 1, // number of DVNs required
        optionalDVNCount: type(uint8).max, // optional DVNs count, uint8
        optionalDVNThreshold: 0, // optional DVN threshold
        requiredDVNs: requiredDVNs, // sorted list of required DVN addresses
        optionalDVNs: optionalDVN // sorted list of optional DVNs
    });

Reference transaction:

0xf3db5c1921a9fe7f52235cbafd2649a5167489b6db86baa5c00e405de7ee09f1

Step 3

The attacker calls verify() on the receiving library with the payload they want to execute. This will verify the payload. If the integrating contract is an OFT (a wrapper contract around ERC20 that integrates LayerZero crosschain flow), the payload is just the receiving address and the amount scaled by the shared decimals. To complete the payload, a global unique identifier (guid) is added at the beginning, this number can be random. The payload is hashed and submitted.

Additionally, a _packetHeader is supplied which specifies the source and destination contract and chain id of the message path, the nonce of the message, and the packet version.

// payload hash
bytes memory _message = abi.encodePacked(
    bytes32(uint256(uint160(attacker))), // address padded to 32 bytes
    uint64(AMOUNT_TO_STEAL) // amount in shared decimals
);
 
bytes32 _guid = bytes32(uint256(69)); // guid is a global unique identifier
bytes memory payload = abi.encodePacked(_guid, _message);
bytes32 _payloadHash = keccak256(payload);
uint64 nonce = 3; // we did one incoming tx on mainnet from arbitrum until now, (0 if not initialized, 1 one tx)
 
IReceiveUln302 uln = IReceiveUln302(ulnAddress);
 
// packetversion: 1 byte
// nonce: 8 bytes
// srcEid: 4 bytes
// sender: 32 bytes
// dstEid: 4 bytes
// receiver: 32 bytes
// total: 81 bytes
bytes memory _packetHeader = abi.encodePacked(packetVersion, nonce, srcEid, sender, dstEid, receiver);

The EndpointV2 contract will later check if this payload has been verified by the required verifiers (what we just did).

Reference transaction:

0x537f887bf58eaa4975f42cb96de5825c4af0898cea0e29ac723133328f3cb2a3

Step 4

The attacker calls commitVerification on the receiving library with the same payload hash and packet header as with the verify call. This will commit the verification to the destination chain. That means the payload hash is stored inside the EndpointV2 contract.

This call will revert if the payload hash or packet header do not match the verify call and if the required verifiers have not verified the payload, as we just in Step 3.

Reference transaction:

0xc2bae285c1232ec8329343379857c191c8c701c95278942652680e500db067b9

Step 5

We can call lzReceive on the EndpointV2 contract with a message whose hash is equal to the payload hash we submitted in Step 3 and 4. This will execute the payload on the destination chain.

bytes memory _message = abi.encodePacked(
    bytes32(uint256(uint160(attacker))), // address padded to 32 bytes
    uint64(AMOUNT_TO_STEAL) // amount in shared decimals
);
 
// MALICIOUS: We dont use packet's data from event but our attack params that we have verified and comitted
ILayerZeroEndpointV2(endpoint).lzReceive(_origin, OFT_ADDRESS_MAINNET, _guid, _message, _extraData);

0x44196a9b06dcb79a41f943cd9a4f4c2358739400b57e1de2c49145b3d9c873e2

Severity

Ultimately, the severity of the attack vector depends on the contract and the protocol that is built on top of LayerZero. We created a flowchart to interpret the impact on DeFiScan rated DeFi protocols.

The following flowchart demonstrates that LayerZero integration introduces different risk profiles - either in the Dependency dimension or as additional Upgradeability risks.

For example if the contract is an OFT, the potential severity is high, as the attacker can mint any amount of tokens. This severity is comparable to an upgradeable token contract, as the upgrade can include stealing funds and minting unbacked tokens. However, compared to a non-upgradeable token with fixed supply, introducing LayerZero integration (an cross-chain transfer) increases the risk of exploitation through centralization.

Mitigation

Upgradeability

Only a designated delegate of an OApp/OFT or the OApp/OFT contract itself can configure the verifier set as in Step 2. In order to prevent this attack vector or its likelihood, the following options exist

1. the verifier set is immutable, no delegate is configured for the OApp/OFT and no delegate can be configured, this is achieved by overriding setDelegate function inside the integrating contract and disable the function. Additionally, the OApp/OFT must not implement a function that calls the setConfig function on the Endpoint. This comes with the trade-off that the verifier set cannot be changed in the future and if the verifier stops working or is discontinued, new contracts need to be deployed.
2. the verifier set is mutable, but the ownership and the registered delegate of the OApp/OFT belongs to a multisig account that satisfies the security council requirements or an onchain governance process that has distributed voting power. This makes exploit attempts more difficult.

Autonomy

The protocol (OApp/OFT) ultimately depends on the DVNs that are configured, whether this is the default DVN settings or a custom setup.

We analysed the DVN settings of OApps/OFTs built on Ethereum Mainnet that where set in past 6 months.

What we found is that 43% of the contracts using LayerZero have setup only one DVN (Fig 1.), this marks ultimate dependency to just one DVN. In most cases this is the LayerZero Labs DVN (Fig 2). In contrast 57% have chosen to reduce dependency to single DVNs by configure two different DVNs (48%) or some have three DVNs configured (9%).

We did not found much diversity in the configurations, most OApp/OFTs in our analysis had the same DVNs configured for all incoming connections on Ethereum Mainnet.

Fig 1.

Fig 2.

Shared vs isolated security

LayerZero brought the concept of isolated security to crosschain communication, where each DApp can configure their own verifier set and their requirements. This allows for dynamic changes in accepted verifiers and the security budget when the App grows and change partners who are trusted in a modular way. However it also introduces a new risk of centralization and requires a lot more effort in monitoring the configured DVNs from the side of the DeFi community as in contrast with bridges that are shared between many DApps.

Risk through LayerZero Labs

LayerZero Labs manages the default verifier set, which is used by default when an app has no verifier configured. If LayerZero Labs were to be compromised, the default verifier set could be compromised as well, leading to attacks on all DApps that use the default verifier set.

Closing remarks

LayerZero is a powerful tool for crosschain communication by allowing modular configuration of verifiers and security settings. However centralization risk evaluation needs to be assessed for each app. It is important to be aware of these risks and to take appropriate measures to mitigate them. We hope this article contributed to assess the centralization risks in DeFi projects that use Layer Zero.

Disclaimer

This article is for educational purposes only. The authors are not liable for any loss or damage arising from the use of this article.