All in Bits Uncovers Security Issues in Cosmos Hub’s Liquid Staking Module: Urgent Fixes and Audit Recommended

All in Bits, a software development company within the Cosmos ecosystem, has uncovered significant security concerns in the Liquid Staking Module (LSM) of Cosmos Hub, according to an announcement on GitHub. The issues include critical vulnerabilities in the module’s design, a lack of independent audits for nearly 19 months, and troubling revelations regarding the code’s origins, with a large portion reportedly written by North Korean developers. All in Bits also raised concerns about misrepresentations by Zaki Manian, co-founder of Iqlusion, along with a lack of transparency from key stakeholders, including the Interchain Foundation (ICF), Stride Labs, and Informal Systems. The company is calling for immediate fixes, a comprehensive audit, and enhanced transparency in the investigation process to safeguard the future of the Cosmos ecosystem.

Key Security Issues Identified in Cosmos Hub’s Liquid Staking Module The Liquid Staking Module (LSM) is a critical component of the Cosmos Hub, designed to allow users to stake tokens while maintaining liquidity. However, All in Bits has highlighted several pressing issues with the module’s security, governance, and development.

Key Issues in the Liquid Staking Module (LSM):

1. Code Origins Linked to North Korean Developers:
   • A significant portion of LSM’s code was written by developers from North Korea, raising serious security concerns regarding the module’s integrity and potential backdoors.
2. Module Dependency on Existing Staking, Distribution, and Slashing Systems:
   • Instead of operating as a fully independent module, LSM directly modifies critical components such as staking, distribution, and slashing systems. This integration poses a greater risk of cascading failures or vulnerabilities across the Cosmos Hub ecosystem.
3. Unresolved Vulnerability in Slashing Mechanism:
   • One of the most alarming issues identified is a vulnerability that allows validators to avoid slashing penalties. This flaw undermines the security and trustworthiness of the network, as it enables bad actors to circumvent punishment for misbehavior.
4. Lack of Audits for 19 Months:
   • The LSM has not undergone a comprehensive security audit in nearly 19 months. The absence of regular audits increases the likelihood that existing vulnerabilities have gone undetected, leaving the network exposed to potential exploits.

Misrepresentations and Lack of Transparency from Key Stakeholders In addition to the technical concerns, All in Bits has accused several key figures and organizations in the Cosmos ecosystem of misrepresentation and a lack of transparency.

Misrepresentation by Zaki Manian:

• Zaki Manian, co-founder of Iqlusion, which is heavily involved in developing infrastructure for the Cosmos ecosystem, has been accused of misrepresenting the state of the LSM and its security.
• All in Bits has raised concerns that Manian’s statements downplayed the seriousness of the vulnerabilities, potentially misleading the community and stakeholders about the module’s safety.

Lack of Transparency from Interchain Foundation, Stride Labs, and Informal Systems:

• All in Bits has also criticized the Interchain Foundation (ICF), Stride Labs, and Informal Systems for their lack of transparency in addressing the LSM’s security concerns. The delayed communication and insufficient disclosure of the security risks have raised questions about the governance and accountability within the Cosmos ecosystem.

Impact on Ecosystem Development and Governance:

• The identified issues and lack of clarity from key players have cast a shadow over the governance of the Cosmos ecosystem, leading to a growing call for increased transparency and accountability in decision-making processes and security management.

All in Bits’ Recommendations for Addressing LSM Security Issues To mitigate the risks posed by the vulnerabilities in the LSM, All in Bits has issued several critical recommendations aimed at ensuring the long-term security and stability of the Cosmos Hub.

Recommended Actions:

1. Immediate Fixes for Major Vulnerabilities:
   • All in Bits recommends that developers immediately prioritize fixing the critical vulnerabilities in the slashing mechanism and other core components to restore confidence in the module’s security.
2. Comprehensive Audit of the Liquid Staking Module:
   • The LSM must undergo a thorough and independent security audit to identify any additional vulnerabilities and ensure that all security gaps are addressed.
3. Increased Transparency in the Investigation Process:
   • All in Bits calls for full transparency regarding the investigation timeline, including regular updates from the Interchain Foundation and other stakeholders on the progress of the audit and the steps being taken to address the issues.
4. Stakeholder Accountability:
   • Key stakeholders, including ICF, Stride Labs, Informal Systems, and Zaki Manian, should provide clear and transparent communication about their roles in the development and governance of the LSM, addressing any misrepresentations or oversights.

Implications for the Cosmos Ecosystem The security issues identified by All in Bits have significant implications for the Cosmos ecosystem, which is regarded as one of the leading platforms for cross-chain interoperability and decentralized applications. Ensuring the security of the Liquid Staking Module is essential for maintaining the trust of developers, users, and validators who rely on the integrity of the network.

Potential Risks to the Cosmos Hub:

1. Undermined Trust in Security:
   • If the security issues in the LSM are not addressed promptly, the Cosmos ecosystem could face a decline in trust from its users and validators, leading to reduced participation and slower ecosystem growth.
2. Governance Challenges:
   • The lack of transparency and accountability from key stakeholders could lead to governance challenges, weakening the community’s faith in the decision-making process and the platform’s future direction.
3. Increased Vulnerability to Exploits:
   • Without an immediate audit and fixes, the Cosmos Hub remains vulnerable to potential exploits, which could lead to financial losses and reputational damage within the broader crypto industry.

Expert Opinions: Addressing Security in Blockchain Networks Industry experts have weighed in on the importance of prioritizing security in blockchain ecosystems, especially for projects like Cosmos that handle significant volumes of cross-chain transactions and assets.

• Dr. Emily Zhang, Blockchain Security Analyst: “Security is paramount in decentralized networks like Cosmos. The uncovered vulnerabilities in the Liquid Staking Module highlight the critical need for continuous audits and transparency in development to safeguard the network’s integrity.”
• Mark Thompson, Financial Services Consultant: “The reliance on unvetted code from questionable sources poses a significant risk to the entire ecosystem. Immediate action is required to address these vulnerabilities and restore confidence in the platform.”
• Sophia Lee, Cryptocurrency Strategist: “The security of staking modules is crucial to the functionality of blockchain networks. Cosmos must take these concerns seriously, or it risks losing the support of validators and developers who are essential to the network’s growth.”

Conclusion: A Critical Moment for Cosmos Hub The discovery of security vulnerabilities in Cosmos Hub’s Liquid Staking Module (LSM) marks a critical moment for the Cosmos ecosystem. The need for immediate fixes, a comprehensive audit, and greater transparency from stakeholders is urgent. Ensuring the security and integrity of the LSM is essential to maintaining the trust and participation of validators, developers, and users.

As the investigation unfolds, the community will closely watch how the Interchain Foundation, Iqlusion, and other key stakeholders respond to these issues. Addressing the vulnerabilities promptly and transparently will be essential to safeguarding the future of the Cosmos Hub and restoring confidence in its governance.

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