Loopring, an Ethereum ZK-Rollup protocol, disclosed on June 9th that some of its smart wallets were exploited, resulting in an undisclosed amount of funds being stolen. As a consequence, Loopring's native token LRC fell approximately 4%, reaching a four-month low of $0.21, as reported by CryptoSlate.

The breach resulted in the theft of around 1,373 ETH, valued at $5 million, according to cybersecurity firm Cyvers Alert. Loopring had previously touted its smart wallets as the most secure on Ethereum due to advanced security measures aimed at preventing asset theft.

The exploit occurred through compromise of Loopring's Two-Factor Authentication (2FA) service, allowing the attacker to impersonate wallet owners and gain approval for recovery processes and asset withdrawals. Loopring stated:

"The attack succeeded by compromising Loopring’s Two-Factor Authentication (2FA) service, allowing the hacker to impersonate the wallet owner and gain approval for the Recovery from the Official Guardian. Subsequently, the attacker transferred assets out of the affected wallets."

Loopring is collaborating with blockchain security firm SlowMist to investigate the breach and the compromised 2FA service. Meanwhile, operations related to Guardian and other 2FA services have been temporarily suspended as part of security measures. Loopring is also coordinating with law enforcement and security professionals to track down the perpetrator, promising updates as the investigation progresses.

The incident highlights vulnerabilities in smart wallets, which have gained popularity in the Ethereum community following the introduction of technologies like ERC-4337 account abstraction on the Ethereum mainnet. Despite endorsements from figures like Vitalik Buterin and entities like Coinbase, decentralization advocate Chris Blec cautioned that the Loopring breach underscores that smart wallets may not be fully mature for widespread use. He advised users to prioritize the security of their assets by relying on properly secured seed phrases.

Pratik Kala, Head of Research at Liquid Digital Assets, echoed similar sentiments, acknowledging the growing popularity of smart wallets while urging caution due to emerging security risks associated with new technologies.