The $44M Hedgey Finance Exploit: What Went Wrong and How Olympix Could Have Prevented It
The $44M Hedgey Finance Exploit: What Went Wrong and How Olympix Could Have Prevented It
June 6, 2025
Overview
In April 2024, Hedgey Finance, a token infrastructure platform used by Web3 teams, suffered a catastrophic exploit. $44 million was drained from its smart contracts, despite undergoing two separate smart contract audits by a top-tier blockchain security firm. The incident has since become a cautionary tale for the limitations of traditional smart contract audits and the need for layered, proactive web3 security.
This case study unpacks the exploit, explores its root cause, and shows how it could have been caught pre-deployment using Olympix, a next-gen smart contract analysis and fuzzing tool. We also share reflections from Alex Michelsen, Founder and CFO of Hedgey, on what this experience taught them and how their approach to web3 cybersecurity has evolved.
About Hedgey Finance
Hedgey Finance provides Solidity-based smart contract infrastructure that allows Web3 teams to distribute tokens with vesting and lockup mechanisms. It is used by DAOs, protocol teams, and projects launching governance tokens or investor distributions.
The platform includes:
Campaign Creation: Token managers configure claim settings and vesting logic.
Token Lockers: Contracts hold the tokens until users meet their eligibility criteria.
Merkle Trees: Provide scalable and verifiable claims.
While the user interface appears simple, all campaign logic is handled on-chain via smart contracts, making web3 security a critical concern.
The Audit Strategy Before the Hack
Before the attack, Hedgey followed what many would consider a standard smart contract security process.
They relied primarily on audits to validate contract safety. In fact, they hired ConsenSys Diligence - a leading smart contract audit firm - not once but twice. The first audit occurred during early development. The second, a re-audit, was commissioned when onboarding a major client, Arbitrum DAO.
Despite that confidence, both audits missed the same critical vulnerability, which would later be exploited. Combined, Hedgey spent a significant amount on these smart contract audits.
When asked about his confidence after each audit, Michelsen admitted:
“High confidence... It felt exhaustive. We felt we’d covered all our bases.”
The Vulnerability
The exploit was not the result of a glaring bug, but rather a dangerous interaction between two seemingly safe functions: createLockedCampaign and cancelCampaign.
The Problem in Detail
When a campaign was created:
Tokens were deposited into a campaign smart contract.
The contract approved a user-supplied “token locker” contract to distribute tokens on its behalf.
However, if the campaign was canceled, the token approval remained active. This meant a malicious locker contract could still use transferFrom() to drain the funds - even after the campaign was canceled.
This approval wasn’t revoked, leaving a backdoor for exploitation - a classic example of a hidden smart contract vulnerability.
The Exploit: Flash Loan Meets Logic Flaw
The attacker exploited this vulnerability via a flash loan:
Funded: Used a flash loan to temporarily acquire tokens.
Created: Launched a campaign using a malicious locker contract.
Canceled: Canceled the campaign to recover funds and repay the loan.
Drained: Used the still-valid token approval to steal $44M from the contract.
This was all executed within a single transaction - a highly sophisticated and hard-to-catch strategy that bypassed typical test coverage.
Why the Audits Missed It
ConsenSys Diligence conducted two audits, with different auditors each time. Neither flagged the lingering approval as a risk. This wasn’t due to negligence. The flaw required understanding how two contract functions could be misused together in a non-obvious way.
This reflects a broader limitation in traditional blockchain security workflows: auditors typically assess contracts in isolation, focusing on function-level correctness, not on emergent behaviors when functions interact in unexpected ways.
Could This Have Been Prevented?
Yes. And here’s how:
If Hedgey had used Olympix, the AI-powered smart contract analysis and fuzz testing tool, the vulnerability would have been detected during development.
Olympix: AI-Powered Fuzzing for Smart Contract Security
Olympix’s fuzzer generates thousands of targeted test cases to simulate attacks based on:
Past smart contract vulnerabilities
Known smart contract audit patterns
AI-generated attack logic
It doesn't rely on developers to predefine edge cases. Instead, it automatically explores every logic path, branch, and condition to uncover real-world exploit vectors, making it a critical addition to any web3 cybersecurity toolkit.
Running the Hedgey Exploit Through Olympix
Olympix was pointed at the claimCampaigns.sol contract.
It generated 3,371 test cases in minutes.
Two tests successfully replicated the exploit.
These tests used the same campaign creation/cancellation logic, and flagged that token approvals were still active post-cancellation.
The fuzzer not only detected the vulnerability but automatically generated the exact Proof of Exploit (PoE) the attacker used before the code was ever deployed to mainnet.
The Outcome and What’s Next for Hedgey
The $44M loss was devastating. But it also transformed how the Hedgey team now approaches web3 security.
Hedgey’s new plan includes:
Self-auditing with Olympix: Including smart contract fuzzing, static analysis, and mutation testing. As well as role playing as a black hat to attempt to self hack during testing.
Multiple audits: Three private audits and one public audit (via Code4rena).
Real-time monitoring: Onboarding Cube3 & Fuzzland for fraud prevention and anomaly detection.
“Before, we thought audits were enough. Now we know they’re just one part of a much broader lifecycle. Security has to start with developers—and it has to be continuous.”
Key Takeaways
Audit ≠ Absolute Safety: Even the best smart contract audit tools can miss vulnerabilities, especially when logic bugs depend on multiple contract interactions.
Unit Tests Aren’t Enough: Hedgey had strong test coverage but lacked mutation testing, fuzzing, or advanced smart contract analysis.
AI Fuzzing Finds What Humans Miss: Olympix’s AI-generated test cases were able to replicate the exact exploit in minutes, long before a human review would have caught it.
Layered Security is the Future of Web3: Tools like Olympix offer a developer-first defense layer. Combined with real-time monitoring and multiple audits, they build a truly resilient blockchain security stack.
Get Started with Olympix
Hedgey’s story is a reminder that web3 cybersecurity needs to evolve. Olympix provides the proactive tooling that modern smart contract teams need.
You can now sign up for access to Olympix:
Instant access to enterprise-grade static analysis, automated unit test generation, and mutation testing
Early access to fuzzing
Works with major frameworks like Hardhat and Foundry
Security isn’t a checkbox. It’s a lifecycle. Olympix is how you start it right.
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Follow-up: Conduct a follow-up review to ensure that the remediation steps were effective and that the smart contract is now secure.
Follow-up: Conduct a follow-up review to ensure that the remediation steps were effective and that the smart contract is now secure.
In Brief
Remitano suffered a $2.7M loss due to a private key compromise.
GAMBL’s recommendation system was exploited.
DAppSocial lost $530K due to a logic vulnerability.
Rocketswap’s private keys were inadvertently deployed on the server.
Hacks
Hacks Analysis
Huobi | Amount Lost: $8M
On September 24th, the Huobi Global exploit on the Ethereum Mainnet resulted in a $8 million loss due to the compromise of private keys. The attacker executed the attack in a single transaction by sending 4,999 ETH to a malicious contract. The attacker then created a second malicious contract and transferred 1,001 ETH to this new contract. Huobi has since confirmed that they have identified the attacker and has extended an offer of a 5% white hat bounty reward if the funds are returned to the exchange.
