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Why Hashdex investors should not be affected by the recent Solana hack


On August 2, a hack affecting wallets in the Solana blockchain was announced on Twitter. Several users had funds drained from their wallets without consent. According to a recent post from one of the official Solana twitter profiles, Solana Status, around 8,000 addresses had been impacted as of August 3, and Solana Labs engineers are investigating the root cause of the attack. This hack differs from several other incidents we have seen since the beginning of 2022—which have mainly targeted exploits in blockchain bridges. In fact, the affected wallets—owned by users of the digital wallets Phantom, Slope and TrustWallet, three major hot wallets compatible with the Solana blockchain—had their addresses drained due to the compromise of their private keys. According to data from TradingView, from the time the hack was first announced to midnight August 4 (UTC), SOL, the native token of the Solana blockchain, was down 4.7%, in comparison to ETH, down 1.3% in the same period.


Hot wallets are digital wallets that allow users to easily interact with several blockchain applications, facilitating the use of crypto assets and the interaction with Web3 protocols through a smartphone app or web browser extension. Although this kind of wallet brings a lot of practicality to the average user, letting them easily sign any blockchain transaction with a click of a button, hot wallets store the private keys of the addresses owned by the user on a device usually connected to the internet (a smartphone or a computer where the wallet is installed), which can be potentially dangerous to the security of said data. Any malicious actor that gains access to the device and becomes aware of a vulnerability that the wallet software may possess can potentially access the user's private keys.


As noted by Anatoly Yakovenko, CEO of Solana Labs, the exploited addresses had mostly only received SOL (the native currency of the smart contract platform) and SPL tokens (the token standard for fungible tokens in the network, such as the stablecoin USDC), meaning most of these wallets had never interacted with any decentralized application such as DeFi, and were owned by users likely investing for the medium and long terms. Also, Yakovenko noted that the hacked private keys seemed to have been imported/created in digital wallets for iOS, raising the possibility that the hacker(s) might have been able to introduce malicious code into the iOS wallet libraries to extract the private keys from any user downloading the modified wallet code in their phones.


Solana Status has since then provided an update, stating that “after an investigation by developers, ecosystem teams, and security auditors, it appears affected addresses were at one point created, imported, or used in Slope mobile wallets.” They further added that the exploit was “isolated to one wallet on Solana” and that “there is no evidence the Solana protocol or its cryptography was compromised.”


At Hashdex, we employ the best-in-class standards for institutional custody, using a combination of cold storage (private keys disconnected from the internet), sharding (private key segregation), and strict governance to offer the most secure and professional custody of the crypto assets we hold on behalf of our investors. Client assets in our WEB311 ETF and HASH ETP, which both hold SOL, are safe from this type of hack due to the stringent custody requirements we place on all our funds. As we have noted in the past, we believe these types of attacks underscore the necessity of institutional custody being a key element of our secure and regulated products.


For more information on how we ensure that crypto assets in our products are protected from hacks and other vulnerabilities, please see our Crypto Custody Primer




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