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Unleash Protocol lost $3.9 million in an exploit after attackers compromised a multi-sig wallet and laundered funds via Tornado Cash.
Author: Chirag Sharma
December 30, 2025 — Unleash Protocol, a decentralized intellectual property platform built on Story Protocol, has suffered a major governance exploit that resulted in losses of approximately $3.9 million. The incident occurred after attackers compromised a multi-signature governance wallet, gained unauthorized upgrade permissions, and drained protocol funds.
Within hours, the stolen assets were bridged to Ethereum and routed through Tornado Cash, significantly complicating recovery. While the Story Protocol base layer remained secure, market confidence took a hit. The $IP token dropped nearly 10 percent but recovered all the drop with a new push.
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Security firms including PeckShield flagged the exploit as another example of governance-level failures overtaking smart-contract bugs as DeFi’s primary risk vector.
The attack targeted Unleash Protocol’s governance layer rather than its core smart contracts. Investigators believe the attacker gained unauthorized access to the protocol’s multi-sig wallet, which controls contract upgrades and treasury permissions.
Once control was obtained, the attacker executed a malicious upgrade. This change enabled rapid fund extraction from the protocol’s treasury. The entire sequence unfolded in under an hour.
Next, the attacker bridged the assets from the Story ecosystem to Ethereum. Finally, they routed the funds through Tornado Cash using multiple transactions to obscure on-chain trails.
This pattern mirrors a growing trend in 2025. Instead of exploiting code bugs, attackers now manipulate governance processes, signers, or proposal workflows.
Unleash Protocol users face the most immediate impact. The platform paused operations to prevent further losses, which may leave creator assets and IP-linked tokens temporarily inaccessible.
Holders of $IP, the native token of Story Protocol, also felt secondary effects. Although the base chain remained uncompromised, association risk triggered sell-offs and liquidity outflows.
More broadly, the incident adds pressure to the DeFi sector. In 2025 alone, governance-driven exploits have contributed billions in losses. Each incident erodes trust among retail users and institutions alike.
Multi-sig wallets and DAO governance systems aim to decentralize control. However, they often introduce new attack surfaces.
Compromised signer keys, social engineering, or malicious proposals can bypass technical safeguards. Once governance fails, attackers gain legitimate-looking permissions that security tools may not flag immediately.
As a result, many experts now argue that governance risk rivals smart-contract risk in modern DeFi systems.
Investors should avoid overexposure to governance-heavy protocols. Diversification across chains and platforms reduces single-point failures.
Additionally, users should monitor governance activity, review signer transparency, and prefer protocols with time-locked upgrades and emergency veto mechanisms.
Finally, DeFi insurance products and real-time alert tools can provide an extra layer of protection in an increasingly hostile environment.
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