Sign in Subscribe
Education

Coinbase’s $550K Approval Disaster: How Ignoring 0x Docs Cost Them Big

Coinbase’s $550K Approval Disaster: How Ignoring 0x Docs Cost Them Big

Source: rekt.news - Drained by Design

On August 13th, Coinbase’s corporate fee wallet lost $550,000 due to a preventable operational error - approving token spending to the wrong contract on 0xProject’s protocol. This incident underscores why carefully heeding blockchain protocol documentation is critical, especially for institutions handling large sums.

What Happened?

  • Coinbase granted ERC-20 approvals to 0xProject’s permissionless Settler contract, despite 0x’s docs clearly warning against it with bold red flags.
  • This gave anyone the power to move Coinbase’s tokens.
  • Within hours, a bot detected the open permissions and methodically drained about 168 different tokens, including AMP, PyUSD, DEXTools, and stablecoins.
  • The bot swapped all stolen tokens into ETH, paying bribes to block builders for priority transaction processing - demonstrating highly professional execution.
  • Crucially: no exploit or bug took place; the system operated exactly as designed, but Coinbase’s operational security failed.

How the Exploit Worked

  • Coinbase’s "corporate DEX wallet" mistakenly authorized the Settler contract rather than safer alternatives like Permit2 or AllowanceHolder.
  • The Settler contract is fully permissionless, meaning anyone can call it to transfer tokens if they hold approvals.
  • The bot used the approval to repeatedly call `transferFrom()` across multiple DeFi pools and protocols, consolidating the tokens into ETH.
  • This process took just about 4 hours and was executed with precision and priority fees, making detection harder.

Why Is This Significant?

  • Coinbase positions itself as a secure, regulated, institutional-grade platform, yet this incident reflects a glaring operational gap.
  • The $550K loss isn’t a hack but a failure to follow documented permission rules - a mistake even typical DeFi traders avoid after a few lessons.
  • Similar approval mistakes previously hit other projects, including Zora, further emphasizing the ongoing risk of handing permissionless contracts unchecked authority.
  • More worrying: Coinbase users lost $65M over two months due to phishing scams handled through compromised support channels, showing broader issues in Coinbase’s security posture.

Lessons for the Industry

  • Documentation warnings exist for a reason: Ignoring them can cost millions.
  • Grants of token spending rights must be carefully controlled with permissioned contracts.
  • Even veteran institutions must stay vigilant about basic DeFi risk hygiene.
  • The incident highlights why DeFi’s trust-minimization model was built-to avoid reliance on centralized entities prone to operational errors.

Final Thought

Coinbase’s $550K “oops” serves as a textbook case showing that institutional-grade doesn't guarantee mistake-proof. In an industry designed to minimize trust, handing keys to permissionless contracts without caution is an invitation for loss, no matter your size.