The Repeated DNS Hijack Vulnerability in DeFi: A Call for Off-Chain Security Reforms

The decentralized finance (DeFi) ecosystem, once heralded as a bastion of trustless innovation, has increasingly become a battleground for sophisticated cyber threats. Among these, DNS hijacking has emerged as a particularly insidious vulnerability, exploiting weaknesses in off-chain infrastructure to siphon funds and erode investor confidence. For Layer 2 DeFi protocols-designed to scale transactions while maintaining security-the risks are amplified by their reliance on centralized domain registrars and DNS services. As recent incidents and architectural flaws reveal, the industry's focus on on-chain smart contract security has left critical off-chain components exposed.

The Escalating Threat: DNS Hijacking in DeFi

In 2023, a coordinated DNS hijacking attack targeted DeFi platforms such as Compound and Celer Network, redirecting users to phishing sites that drained their wallets of digital assets. The attackers, linked to the Inferno Drainer group, exploited vulnerabilities in DNS records hosted on Squarespace, a domain registrar that had recently migrated from Google Domains. This migration inadvertently removed two-factor authentication (2FA) from many accounts, creating a window of opportunity for hackers to alter DNS records and execute malicious transactions according to reports.

The problem has persisted into 2024 and 2025, with off-chain attacks accounting for 56.5% of all DeFi breaches and 80.5% of stolen funds in 2024 alone according to analysis. A 2025 report highlighted that compromised accounts-often due to DNS hijacking-were the most frequent and costly attack vector, with total losses from the top 100 DeFi hacks reaching $10.77 billion according to data. These figures underscore a systemic failure to secure the infrastructure that connects users to DeFi platforms.

Architectural Weaknesses: The Layer 2 Vulnerability

Layer 2 DeFi ecosystems, which rely on off-chain solutions like optimistic rollups and state channels, are particularly susceptible to DNS hijacking. A critical vulnerability, CVE-2025-40778, has been identified in the widely used BIND 9 DNS resolver software. This flaw allows attackers to inject forged DNS records into a resolver's cache using as few as one or two packets, bypassing decades of DNS security improvements according to technical analysis. The vulnerability exploits a logical error in BIND 9, enabling attackers to redirect traffic, harvest credentials, and deploy malware.

Related vulnerabilities in DNS software like Unbound (CVE-2025-11411) and PowerDNS (CVE-2025-59023) further compound the risks according to security research. These flaws are not limited to open resolvers but also affect internal enterprise DNS servers and private networks, making them a systemic threat to DeFi platforms that depend on centralized DNS infrastructure. For instance, in October 2025, Garden Finance, Typus Finance, and Abracadabra collectively lost $16.2 million due to DNS-related breaches and oracle manipulation according to financial reports.

Investment Risks and Mitigation Strategies

For investors, the financial implications of DNS hijacking are stark. Off-chain attacks have proven to be both frequent and devastating, with compromised accounts accounting for the majority of DeFi losses. To mitigate these risks, DeFi platforms must adopt a multi-layered defense strategy:

1. DNSSEC Implementation: Domain Name System Security Extensions (DNSSEC) provide cryptographic authentication for DNS records, reducing the risk of domain hijacking according to security experts. Platforms should enforce DNSSEC validation on recursive resolvers and integrate it with on-chain verification mechanisms.

2. Continuous Monitoring: Real-time monitoring of DNS records for unauthorized changes is essential. Automated tools can detect anomalies and trigger alerts, enabling rapid response to potential breaches according to security analysis.

3. 2FA and Access Controls: Enforcing 2FA for domain management accounts and implementing strict access controls can prevent unauthorized modifications to DNS records according to best practices.

4. HTTPS and Secure Communication: Using HTTPS for web applications prevents man-in-the-middle (MITM) attacks by ensuring encrypted communication between users and platforms according to technical guidance.

5. Reputable DNS Providers: Platforms should migrate to DNS providers with robust security practices, such as Infoblox, which recently launched a predictive DNS-based threat protection solution integrated with AWS Network Firewall according to industry news.

6. User Education: Educating users about DNS hijacking risks and how to identify phishing attempts is critical. Platforms can incorporate tutorials and alerts to enhance user awareness according to security research.

7. Regular Audits: Conducting penetration testing and security audits of DNS infrastructure helps identify vulnerabilities before they are exploited according to industry standards.

A Call for Off-Chain Reforms

While on-chain security remains a priority, the DeFi industry must recognize that off-chain infrastructure is equally vital. Matthew Gould of Unstoppable Domains has proposed a solution involving verified on-chain records for domains, requiring a user's wallet signature for DNS updates according to industry analysis. This approach would add a cryptographic layer to domain management, making it harder for attackers to alter records without breaching both the registrar and the user.

However, technical solutions alone are insufficient. Policymakers and industry leaders must collaborate to establish standards for DNS security in DeFi. This includes incentivizing the adoption of DNSSEC, mandating 2FA for domain registrars, and promoting transparency in DNS management practices.

Conclusion

The repeated DNS hijacking incidents in DeFi highlight a critical gap in the industry's security framework. For Layer 2 ecosystems, which balance scalability with security, the risks are particularly acute. Investors must factor in off-chain vulnerabilities when assessing the resilience of DeFi platforms. By prioritizing DNSSEC, continuous monitoring, and user education, the industry can mitigate these threats. Yet, lasting reform requires a cultural shift-one that treats off-chain infrastructure with the same rigor as on-chain code. Without such measures, DeFi's promise of financial inclusion and innovation will remain shadowed by the specter of cyberattacks.