When Smart Contracts Become Weapons: $10 Million Siphoned via Phishing Breach

The crypto world faced another wake-up call in March when security auditor CertiK traced $10 million worth of ETH moving into Tornado Cash—a cryptocurrency mixing service notorious for laundering stolen assets. This wasn’t a simple wallet hack. The attacker successfully weaponized a seemingly innocent smart contract function to drain funds from an unsuspecting investor.

How Token Approvals Turn Into Traps

Here’s where it gets dangerous: the victim unknowingly authorized an “Increase Allowance” transaction. This function, built into ERC-20 token standards, was designed for convenience—allowing smart contracts to spend your tokens with your permission. But in this case, the attacker exploited it brilliantly. Instead of directly stealing funds, they gained the ability to approve and transfer assets at will. It’s like handing someone a blank check and hoping they don’t cash it.

Scam Sniffer, a blockchain fraud detection platform, identified exactly this mechanism at work. The attacker converted stolen assets into 13,785 ETH (worth approximately $40.6 million at current prices around $2,950 per token) and 1.64 million DAI, then carefully routed portions through exchanges to cover their tracks.

The Numbers Tell a Sobering Story

This incident connects back to a larger September 2023 phishing campaign targeting a cryptocurrency whale. The victim lost $24 million in staked ETH through the Rocket Pool liquidity staking service during that initial attack. The exploitation happened in two waves: first removing 9,579 stETH, then stripping away 4,851 rETH from the same account.

But the September incident was just one of many. Recent data shows February alone saw nearly $47 million evaporate through phishing-related scams—with 78% of these thefts occurring on Ethereum and ERC-20 tokens comprising 86% of stolen funds. The pattern is clear: token approvals have become the attackers’ favorite backdoor.

When Old Contracts Become Attack Vectors

March brought more trouble. A legacy smart contract previously used by the Dolomite exchange was compromised, draining $1.8 million from users who had previously granted it approval rights. The Dolomite team scrambled to issue an emergency revocation advisory, urging users to withdraw consent from the vulnerable contract address.

The Layerswap incident revealed another layer of vulnerability. When their website was compromised through phishing, approximately 50 users lost assets worth $100,000 before the team and domain provider managed to contain the breach. While Layerswap committed to full reimbursement plus compensation, the damage was done.

The Bigger Picture: Education Meets Technology

These aren’t isolated incidents—they’re symptoms of a systemic problem. Token approvals democratized access to blockchain functionality but also created a dangerous blind spot. Users often approve contracts without understanding what permissions they’re actually granting. The technical sophistication gap between average users and attackers keeps widening.

Security firms like CertiK and PeckShield are playing defense, analyzing blockchain transactions and flagging suspicious movement. But detection after the fact doesn’t prevent losses. What’s needed is a shift in how users interact with smart contracts: verifying every approval, understanding what each permission entails, and maintaining vigilance across wallet interactions.

The crypto community must invest in better tooling, clearer UI/UX for approval processes, and consistent education campaigns. Until the gap between technical reality and user understanding narrows, phishing attacks exploiting token approvals will remain one of the sector’s most persistent threats.