Osmosis (@osmosis) has completed the recovery of Alloyed BTC (allBTC), restoring real Bitcoin backing to the token after an exploit of the @nomicbtc bridge. The recovery combined $BTC seized
Osmosis (@osmosis) has completed the recovery of Alloyed BTC (allBTC), restoring real Bitcoin backing to the token after an exploit of the @nomicbtc bridge. The recovery combined $BTC seized from the attacker with funds from the Osmosis community pool.
On June 25, an attacker exploited a bug in the Nomic bridge to mint about 40 unbacked nBTC. Nearly all of it ended up inside allBTC. According to ChainCatcher, Nomic minted 40.650602 nBTC on that date without Bitcoin reserve backing, and 39.839746 of it was counted as collateral for allBTC. That pushed the backing ratio down to 63.97%.
allBTC is designed to combine several Bitcoin representations into one asset. CryptoAdventure reported that the basket includes native WBTC, Axelar-routed WBTC and cbBTC, Cosmos Hub-routed WBTC and Nomic's nBTC. Osmosis said its own contracts and the Inter-Blockchain Communication (IBC) protocol were not compromised, according to The Crypto Times.
The shortfall went unnoticed for 74 days before Nomic paused operations on September 7, Phemex reported. The same report said about 18 BTC had been laundered through Tornado Cash and could not be directly recovered.
After Nomic halted, Osmosis validators used an emergency upgrade to freeze the 22.65 BTC still held by the attacker. PANews reported that the proposal paired the seized 22.65 BTC with 17.19 BTC from the community pool to cover the shortfall.
$OSMO stakers approved the plan in a governance vote. BTC from the community pool then covered the remaining 17 BTC gap. The v32 upgrade moved the frozen coins to an Osmosis liquidity fund. With every fake nBTC removed from the alloy, each allBTC is again backed by real Bitcoin.
The incident shows the risk in pooled bridge assets, where a flaw in one component can affect the whole token. As PrimeXBT noted, nBTC made up enough of allBTC's backing that a single exploit put more than a third of the collateral in question.
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