Hacker Exploits USPD Stablecoin Protocol, Drains $1M in Digital Heist
Another day, another crypto protocol learns the hard way that code isn't law—it's just code. A sophisticated attack has siphoned seven figures from the USPD stablecoin ecosystem, highlighting the persistent vulnerabilities lurking beneath the surface of DeFi's glossy promises.
The Mechanics of the Breach
The exploit didn't rely on flashy social engineering. Instead, it targeted a smart contract vulnerability, allowing the attacker to manipulate transaction logic and mint or drain assets illegitimately. The method was technical, surgical, and devastatingly effective—bypassing security layers that were supposed to be ironclad.
The Aftermath and Response
Protocol developers scrambled into damage-control mode, pausing contracts and launching an investigation. The usual chorus of blockchain forensic firms is now tracing the stolen funds across the ledger—a digital paper trail that's transparent yet often frustratingly final. User funds beyond the immediate exploit remain reportedly secure, but confidence is the real casualty here.
A Stark Reminder for DeFi
This incident cuts to the core of DeFi's value proposition: trustless, immutable, and secure finance. Each breach chips away at that narrative, reminding participants that high yields often come with even higher hidden risks. It's the financial innovation tax—paid not to regulators, but to anonymous actors with a talent for finding loopholes.
The sector will tout its resilience, how $1 million is a rounding error in a multi-trillion-dollar market. But for the users affected, it's a total loss—another cynical footnote in finance's grand experiment of replacing middlemen with code that sometimes has a mind of its own.
USPD hacker took advantage of proxies to trick protocol into minting
The DeFi protocol’s report mentioned that the breach exploited a complex attack vector named “CPIMP,” short for Clandestine Proxy In the Middle of Proxy. USPD explained the attacker front-ran the proxy initialization on September 16 during deployment using a Multicall3 transaction.
2/ This was not a flaw in our smart contract logic.
The USPD protocol underwent rigorous security audits by top-tier firms @NethermindEth and Resonance. Our code is fully unit-tested and adheres to strict industry standards. The logic itself remains secure.
— USPD.IO | The Dollar of the Decentralized Nation (@USPD_io) December 4, 2025
The hacker used CPIMP to seize administrative rights silently before the protocol’s scripts were fully executed, waiting for months to start minting coins without authorization. They implemented a “shadow” contract that forwarded calls to USPD’s audited code, then subtly implemented an event payload manipulation and storage slot spoofing to deceive Etherscan into displaying the original audited contract.
“This camouflage allowed the attacker to hide in plain sight for months, bypassing verification tools and manual checks. Today, they used their hidden access to upgrade the proxy, mint ~98M USPD, drain ~232 stETH,” USPD wrote.
Blockchain analyst Emmet Gallic reiterated the DeFi protocol’s analysis, adding that a proxy initialization caused the attack during deployment.
“The attacker claimed admin rights, installed a shadow implementation that spoofed Etherscan into showing the audited contract. The protocol was hacked for months,” he surmised.
USPD to continue with investigations, pledges bounty to hacker
In response to the attack, USPD stated that it is working closely with law enforcement and whitehat security groups to trace and freeze the stolen funds. “We have flagged the attacker’s addresses with all major CEXs and DEXs to freeze the FLOW of funds,” the team revealed.
The protocol also said it was willing to resolve the situation with the attacker if the funds are returned minus a standard 10% bug bounty. The protocol promised to cease all law enforcement actions if they accepted the offer and encouraged the attacker to contact them directly or return 90% of the stolen assets to see the matter resolved.
“We are devastated that despite rigorous audits and adherence to best practices, we fell victim to this emerging and highly complex attack vector. We are doing everything in our power to recover assets,” USPD told its community.
According to CoinMarketCap, the stablecoin’s peg to the greenback hasn’t been affected so far, but its volume has dropped by 20% within the last 24 hours to around $2.56 million.
DeFi stablecoin protocol breaches were once much bigger than what USPD faced, including a Euler Finance hack in 2023 that led to more than $197 million in losses after stablecoins were drained from its lending pools.
Two DeFi protocols in recovery mode after November exploits
Last Monday, Yearn Finance became the latest protocol to suffer an exploit on its liquid-staking index token yETH. The perpetrator minted an effectively unlimited number of tokens and stole about $3 million in ETH.
Yearn Finance had previously suffered a $9 million exploit in its yETH stableswap pool on November 30, but as Cryptopolitan reported on Wednesday, it has already begun recovering stolen funds. So far, the team has successfully reclaimed $2.39 million, which will be returned to affected depositors.
Balancer, another DeFi protocol that lost $128 million through a v2 breach, announced plans to reimburse approximately $8 million to liquidity providers last week.
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