Executive Summary

On October 4, 2025, Abracadabra Money, a leading DeFi lending protocol and creator of the Magic Internet Money (MIM) stablecoin, suffered a devastating exploit resulting in approximately $1.8 million in losses. The attacker exploited a critical business logic vulnerability in the protocol's deprecated Cauldron V4 smart contracts, bypassing solvency checks to borrow funds without providing adequate collateral.

This marked the third major security breach for Abracadabra in under two years, following a $6.4 million exploit in January 2024 and a $13 million flash loan attack in March 2025. The October incident resulted in the theft of 1,793,766 MIM and 395 ETH, with immediate market impact including a 16.98% drop in MIM trading volume.

In this comprehensive post-mortem, we analyze the technical details of the exploit and reveal how Olympix's proactive smart contract security tools identified this exact vulnerability, demonstrating how this costly breach could have been entirely prevented.

Attack Overview

Timeline of Events

October 4, 2025: Attacker exploited a logic flaw in Abracadabra's Cauldron V4 contracts

Immediate Impact:

• 1,793,766 MIM (~$1.8M) stolen
• 395 ETH drained from protocol
• MIM stablecoin trading volume dropped 16.98%
• Funds laundered through Tornado Cash

Protocol Response:

• Emergency pause of all borrowing from affected Cauldrons
• DAO treasury buyback of dumped MIM to stabilize the peg
• No user funds directly affected
• Total Value Locked (TVL) remained at $154M

Context: A Pattern of Vulnerabilities

This exploit represents the third significant breach of Abracadabra's infrastructure:

• January 2024: Smart contract exploit - $6.4M loss
• March 2025: Flash loan attack - $13M loss
• October 2025: Logic error in cook() function - $1.8M loss

Technical Deep Dive: The Vulnerability

Understanding the cook() Function

The vulnerability resided in Abracadabra's cook() function within the Cauldron V4 contracts deployed on Ethereum. The cook() function is a multi-action processor designed to enable users to perform multiple operations within a single transaction, a common pattern in DeFi protocols for gas optimization and user experience.

The CookStatus Struct

The function relies on a shared CookStatus struct to track state across different actions:

solidity

struct CookStatus {

    bool needsSolvencyCheck;

}

This struct serves as a flag system to determine whether the protocol should verify that a user maintains adequate collateral after completing their operations. When needsSolvencyCheck is set to true, the function calls _ensureSolvent(user) before completing the transaction.

The Critical Flaw: Action Handling

The cook() function processes an array of actions, each identified by a numeric code:

• Action 5 (ACTION_BORROW): Allows users to borrow assets from the protocol
• Action 0 (ACTION_CUSTOM): Executes custom operations via _additionalCookAction()

Action 5 sets status.needsSolvencyCheck = true to require a collateral check. However, Action 0, when executed through _additionalCookAction(), returned an entirely new default struct:

solidity

function _additionalCookAction() internal returns (CookStatus memory) {

    return CookStatus(false); // Returns NEW struct with needsSolvencyCheck = false

}

When Action 0 executed, it completely overwrote the existing status variable, resetting needsSolvencyCheck to its default value of false.

State Management Failure

The root cause was a fundamental mishandling of state management in Solidity. The function returned a new struct that overwrote the existing status, rather than modifying the existing state in place. This allowed the attacker to bypass the protocol's solvency protections.

The Exploit Mechanism

Attack Sequence

The attacker executed a carefully orchestrated sequence of operations that exploited the state reset vulnerability:

Step 1: Initial Setup

• Attacker identified vulnerable Cauldron V4 contracts (deprecated but still active)
• Prepared malicious transaction with specific action sequence

Step 2: Exploit Execution

The attacker called cook() with the following action array: [5, 0]

Transaction Flow:

1. Execute Action 5 (BORROW)
   
   • Borrow funds from protocol
   • Set needsSolvencyCheck = true
2. Execute Action 0 (CUSTOM)
   
   • Call _additionalCookAction()
   • Return CookStatus(false)
   • OVERWRITE status variable
   • needsSolvencyCheck = false
3. Final Check
   
   • Check if needsSolvencyCheck?
   • FALSE → Skip _ensureSolvent()
   • Transaction completes

Result: Borrowed without collateral

Step 3: Repeated Exploitation

The attacker repeatedly alternated between Action 5 and Action 0, draining funds systematically through multiple transactions. Each cycle allowed the attacker to withdraw additional funds without providing collateral.

Step 4: Fund Extraction

After draining 1,793,766 MIM and 395 ETH from the protocol:

1. Converted MIM to ETH via Curve Finance and Uniswap
2. Transferred ETH through Tornado Cash for obfuscation
3. Successfully laundered stolen funds

Why Existing Protections Failed

Abracadabra had implemented solvency checks to prevent under-collateralized borrowing. However, the checks failed because:

1. Deprecated Contracts Remained Active: Cauldron V4 was deprecated but not deactivated
2. Lack of Continuous Auditing: Deprecated contracts weren't subject to ongoing security reviews
3. Shared State Vulnerability: The CookStatus struct was shared across actions without proper isolation
4. Logic Error in Helper Function: _additionalCookAction() returned a new struct instead of modifying existing state

Impact and Aftermath

Immediate Financial Impact

Direct Losses:

• 1,793,766 MIM (~$1.8 million USD)
• 395 ETH (additional value)
• Total: Approximately $1.8M in stolen assets

Market Impact:

• MIM trading volume decreased 16.98%
• Temporary pressure on MIM stablecoin peg
• Protocol reputation damage

Protocol Response

Abracadabra's team moved quickly to contain the damage:

1. Emergency Pause: Immediately halted all borrowing from affected Cauldron contracts
2. Treasury Buyback: DAO treasury purchased 1.79M MIM from the market to offset dumped supply and maintain the stablecoin peg
3. User Protection: Confirmed no user funds were directly affected; only protocol reserves were drained
4. TVL Stability: Total Value Locked remained at $154M

Communication Challenges

The protocol's post-hack communication received criticism for lack of immediate transparency about the technical details and delayed public disclosure.

How Olympix Detected the Vulnerability

Olympix's Discovery: solvency_check_bypass_by_action_reset

Olympix's proactive smart contract security tools identified this exact vulnerability during development—before deployment. Here's what our platform detected:

Vulnerability Report

Severity: High 🔴

Unit Name: CauldronV4

Location: CauldronV4.sol: cook() - action status flag reset

Vulnerability Type: Business Logic Flaw / State Management Error

Detailed Finding

Our automated static analysis identified the critical flaw in how the cook() function handled the CookStatus struct across different actions.

What Olympix Detected:

The cook() function processes a series of actions using a shared CookStatus struct to track state, including needsSolvencyCheck.

CRITICAL FLAW IDENTIFIED:

• ACTION_BORROW (action 5) correctly sets status.needsSolvencyCheck = true
• ACTION_CUSTOM (action 0) calls _additionalCookAction()
• _additionalCookAction() returns NEW CookStatus struct: CookStatus(false)
• This OVERWRITES the existing status variable entirely
• needsSolvencyCheck resets to false
• Final _ensureSolvent(user) check is SKIPPED

EXPLOIT SCENARIO:

Attacker calls cook() with actions = [5, 0]

• Action 5: Set needsSolvencyCheck = true
• Action 0: Overwrite status with CookStatus(false)
• Final check skipped
• RESULT: Borrow without collateral verification

How Olympix's Technology Works

Olympix provides enterprise-grade proactive security tools that empower development teams to identify and fix vulnerabilities pre-audit and pre-deployment.

Static Analysis

Olympix scans contracts in real-time to find potentially exploitable lines of code, highlights the vulnerability, explains how that vulnerability has played out in real-world exploits, and shows how to fix the issue.

Custom Compiler and IR: We built our own compiler, Intermediate Representation (IR), and custom detectors which allow us to traverse much deeper into the contract and understand more nuances about the codebase than other tools on the market. When benchmarking against Slither, we see a 75% accuracy rate compared with Slither's 15% accuracy.

In this case, Olympix's tools:

• Recognized that ACTION_BORROW should always trigger a solvency check
• Flagged the logic path where this requirement could be bypassed
• Identified that _additionalCookAction() returns a new struct instead of modifying existing state
• Traced data flow across multiple functions to detect the state corruption vulnerability

Automated Unit Testing

Olympix writes unit tests which meet your quality and style requirements to take line and branch coverage from 0% to as high as 90% automatically.

Our tool utilizes three sophisticated components:

1. Our custom IR combined with complex compiler-level code analysis
2. Seven custom algorithms which direct and guide the AI to build real, passable, workable tests that guarantee coverage
3. A large language model trained on every historical exploit path/pattern, with continuous training on new exploits

Mutation Testing

Mutation testing adds an additional dimension of testing by introducing small changes, or "mutants," to your codebase and uncovering whether your test suite can detect those changes, ensuring your test suite is robust.

Almost all exploits can be traced back to a bad commit that was able to pass through the codebase's test suite. Without mutation testing, these codebases are left insecure and with incomplete test suites, leading to real-world exploits.

Why Traditional Audits Missed This

Manual code audits often fail to catch business logic vulnerabilities because:

1. Complexity: The vulnerability spans multiple functions and requires understanding execution order
2. Subtlety: The code appears valid—returning a struct is common Solidity practice
3. Context: Auditors must understand the entire action flow and state management architecture
4. Deprecated Code: Many audits skip deprecated contracts that remain active
5. Time Constraints: Auditors face knowledge, time, or contextual constraints

The majority of $1B+ DeFi exploits in 2024 stemmed from audited smart contracts. Audits miss critical vulnerabilities all the time.

The Olympix Advantage

If Abracadabra had used Olympix's security platform:

✅ Vulnerability detected pre-deployment during development phase
✅ Specific exploit path identified with detailed reproduction steps
✅ Clear remediation guidance provided to development team
✅ Automated re-testing after fix implementation
✅ Continuous monitoring even for deprecated contracts

Result: $1.8M loss prevented, protocol reputation protected, user trust maintained.

Proven Results

Organizations using Olympix see:

• 84% reduction in coded vulnerabilities (for example: a major payments provider has closed over 3,200 Olympix-identified true positive vulnerabilities in the past 2 years)
• 20% reduction in audit findings within 60 days of launch, leading to a reduction in audit cycles and audit costs
• 35% estimated total project cost reduction using Olympix' full suite of tools, due to lower required engineering capacity and decreased audit prices with a 20% quicker project launch time

Lessons for the DeFi Ecosystem

For Protocol Developers

State Management is Critical

The difference between modifying state in-place versus returning a new struct can enable attackers to bypass security protections entirely.

Deprecated Does Not Mean Safe to Ignore

Deprecated contracts that remain active must continue to receive security monitoring and audits. If a contract is live, it must be secured.

Business Logic Vulnerabilities are Harder to Find

Logic errors are context-dependent and don't match known vulnerability patterns. They require understanding intended behavior and often span multiple functions. Proactive automated tools specifically designed for logic analysis are essential.

Multi-Action Functions Need Special Attention

Functions that process arrays of actions are powerful but dangerous. Each action can affect shared state, order of operations matters, and state changes in one action can invalidate assumptions in others.

Security Starts During Development

A strong security posture starts during development. Waiting until audit time is too late. Empower your team to identify and fix vulnerabilities pre-audit and pre-deployment.

For DeFi Users and Investors

Multiple Exploits Indicate Systematic Issues

When a protocol suffers repeated breaches, it indicates systematic security failures. One hack might be unfortunate; three suggests deeper problems with security practices.

Audit Reports Aren't Guarantees

Audits are point-in-time assessments. Auditors can miss complex logic errors, and new vulnerabilities can emerge post-audit. Look for protocols using proactive security tools and continuous monitoring.

Response Matters

How a protocol handles a breach reveals their priorities. Fast response and transparent communication are positive signs. Delays and obfuscation are red flags.

Ask About Security Practices

Before trusting a protocol with funds, ask:

• What proactive security tools do they use during development?
• How often are audits performed?
• Do they have bug bounty programs?
• Is there continuous security monitoring?
• How do they handle deprecated contracts?

For Security Auditors

Logic Errors Require Different Approaches

Traditional vulnerability scanning isn't sufficient. Auditors must understand the protocol's intended economic model, map all possible state transitions, and test action sequences rather than just individual functions.

Proactive Tools Complement Audits

Manual review alone cannot catch everything. Protocols that use proactive security tools during development arrive at audit with significantly fewer vulnerabilities, allowing auditors to focus on sophisticated, novel issues.

Deprecated Code Still Matters

If a contract is deployed and active, it can be exploited. Include legacy contracts in audit scope and recommend deactivation rather than just deprecation.

Conclusion

The Abracadabra hack demonstrates how subtle logic errors in smart contracts can have devastating financial consequences. The theft of $1.8 million through a simple state management flaw underscores the critical importance of proactive, comprehensive security practices in blockchain development.

The Cost of Inadequate Security

For Abracadabra, this exploit represents:

• $1.8M in direct financial losses
• Significant reputational damage after the third major breach
• User trust erosion in the MIM stablecoin
• Market instability and decreased trading volume

For the broader DeFi ecosystem, repeated high-profile hacks undermine mainstream adoption and highlight the maturity gap between traditional and decentralized finance.

The Impact of Proactive Security

Protocols using Olympix benefit from:

Financial Benefits: Reduced audit costs, fewer post-deployment incidents

Operational Benefits: Increased development efficiency and velocity

Reputational Benefits: Signal trustworthiness to users and partners

Reduced Risk: Of exploit, financial damage, and reputational damage

How Olympix Changes the Game

Traditional security approaches failed to prevent this exploit. Olympix's proactive security platform identified the vulnerability by:

✅ Detecting the exact vulnerability during development—before deployment
✅ Mapping the specific attack path with clear reproduction steps
✅ Providing actionable remediation guidance
✅ Enabling continuous security monitoring throughout the development lifecycle
✅ Catching logic errors that manual audits consistently miss

The Abracadabra hack didn't have to happen. With Olympix's proactive security tools integrated into their development workflow, this vulnerability would have been caught during coding, fixed before audit, and $1.8 million would still be securing the protocol.

Protect Your Protocol

If you're building on blockchain, the question isn't whether your smart contracts have vulnerabilities—it's whether you'll find them before an attacker does.

Don't wait for an exploit to discover your vulnerabilities.

Olympix provides:

• Static Analysis that scans contracts in real-time with 75% accuracy (vs. 15% for other tools)
• Automated Unit Testing to achieve up to 90% coverage automatically
• Mutation Testing to ensure your test suite is robust
• Proactive vulnerability detection for business logic flaws during development
• Coverage for deprecated contracts that remain active
• Enterprise-grade technology with custom IR for maximum accuracy

The technology exists to prevent exploits like Abracadabra's. Over $10B in TVL is currently protected by Olympix, and 30% of Solidity developers already use our tools. The only question is whether you'll use it.

Secure Your Smart Contracts with Olympix

Own security from day one.

Olympix's proactive smart contract security platform identifies business logic flaws, state management errors, and complex vulnerabilities during development—exactly like the one that cost Abracadabra $1.8 million. Get your first pre-audit scan free!

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