Incident Overview
On October 20, 2025, Sharwa Finance, a lending protocol on Arbitrum, was exploited for approximately $147,000 through a price manipulation attack targeting USDC and WBTC liquidity pools. The Tornado Cash-funded attacker executed an atomic sandwich attack exploiting the protocol's reliance on Uniswap V3 quoter prices, with Sharwa committing to 100% refunds for affected users.
Sharwa Finance is a lending protocol allowing users to open long/short positions on BTC and ETH. The vulnerability stemmed from the protocol's blind trust in Uniswap V3 quoter prices without proper safeguards when closing positions. The attacker executed a two-transaction atomic sandwich attack: In transaction 1, they created a margin account with a BTC long position by depositing 2,000 USDC and borrowing approximately 40,000 USDC to purchase BTC.
In transaction 2, they performed the price manipulation sandwich by first swapping a large amount of BTC to USDC to crash the price, then immediately closing the long position which forced the protocol to sell BTC at the manipulated unfavorable price (creating bad debt), and finally swapping USDC back to BTC to complete the profitable sandwich. The attacker was funded through Tornado Cash and bridged funds from Ethereum mainnet to Arbitrum before executing the exploit.
40,000 USDT were recovered with a help of Binance
Incident Report
Protocol Information
Market Context at Time of Hack
What the Attacker Needed to Succeed
Understanding the prerequisites for this type of attack helps auditors identify protocols that are most at risk and helps developers build better defenses.
What Auditors Should Check
If you're auditing a protocol with similar architecture to Sharwa.Finance, these are the critical security checks that could have prevented this incident (October 2025).
- Verify all logic paths related to Price Manipulation Attack / Other are guarded by proper access controls and input validation - see the Oracle Manipulation & Price Manipulation attack class for patterns
- Audit oracle price feeds for manipulation risks - ensure time-weighted average prices (TWAPs) or multi-source aggregators are used, not spot prices
- Review privileged functions (owner, admin, governance) for potential abuse vectors - centralization risks should be documented and bounded with timelocks or multi-sigs
Master these auditing techniques with hands-on labs and real exploit scenarios in the Smart Contract Hacking course.
Free TrialFunds Recovery
Recovered
$40K
Net Loss
107016
Security Audit History
- Audit Report 1 Report
Related Attack Classes
The technique used in this hack maps to these vulnerability classes in our security curriculum:
Proof-of-Concept Exploits
On-Chain Evidence & References
- Twitter/X Alert https://x.com/phalcon_xyz/status/1980219745480946087?s=46
Sources & References
- 01
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- 03
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