If you have been following crypto news in September 2024, you have probably seen headlines about the Penpie protocol losing $27 million to a reentrancy attack. With Bitcoin trading around $54,000 and the market already on edge, the exploit sent ripples through the DeFi community. But what exactly is a reentrancy attack, and why does it keep happening? This guide breaks down one of the most common and dangerous smart contract vulnerabilities in plain language that anyone can understand.
The Basics
A reentrancy attack is a type of smart contract exploit where an attacker tricks a contract into giving them money multiple times before the contract realizes it has already paid out. Think of it like a vending machine that dispenses your snack but forgets to deduct the cost from your balance — except the attacker presses the button hundreds of times in rapid succession before the machine can update its records.
In technical terms, the vulnerability occurs when a smart contract makes an external call to another contract before updating its internal state. The attacking contract receives the external call and immediately calls back into the original contract, exploiting the fact that the state has not yet been updated. This loop continues until the victim contract is drained.
The most famous reentrancy attack in crypto history was the DAO hack of 2016, which resulted in the theft of approximately $60 million in Ether and ultimately led to the hard fork that created Ethereum and Ethereum Classic as separate chains. Despite being known for nearly a decade, reentrancy vulnerabilities continue to appear in new smart contracts.
Why It Matters
Reentrancy attacks matter because they can drain millions of dollars in minutes, and they exploit fundamental flaws in how smart contracts are written rather than taking advantage of network-level weaknesses. The Penpie attack on September 3, 2024, demonstrated this clearly: the attacker exploited a missing reentrancy guard in Penpie’s reward harvesting function, using a combination of flash loans and a fake token contract to drain 11,113.6 ETH worth approximately $27.3 million.
For everyday DeFi users, reentrancy attacks represent a risk that is difficult to assess from the outside. You might deposit funds into a protocol that appears legitimate, has a professional website, and even displays audit badges — but if the underlying smart contracts contain reentrancy vulnerabilities, your funds are at risk. Understanding the basics of how these attacks work empowers you to ask the right questions before committing your assets to any protocol.
The broader impact extends beyond individual losses. Each high-profile exploit erodes trust in the DeFi ecosystem, making it harder for legitimate projects to attract users and capital. When Penpie was exploited, the PNP token dropped 40% in value, affecting even users who had not directly deposited funds into the protocol. Contagion effects can spread to related protocols, as seen when Pendle Finance had to pause its entire platform to prevent further damage.
Getting Started Guide
Protecting yourself from reentrancy-related exploits starts with understanding the questions to ask before depositing funds into any DeFi protocol. Here is a practical framework for beginners.
Step 1: Check for audit reports. Legitimate protocols commission security audits from reputable firms like Trail of Bits, OpenZeppelin, ConsenSys Diligence, or CertiK. Look for audit reports published on the protocol’s documentation site and verify that the auditors actually exist and are respected in the industry. A single audit is a minimum; multiple audits from different firms are better.
Step 2: Verify reentrancy protection. While you may not be a developer, you can check whether a protocol mentions reentrancy guards in its documentation or audit reports. If the audit flagged reentrancy concerns and the protocol addressed them, that is a positive sign. If there is no mention of reentrancy protection at all, proceed with extreme caution.
Step 3: Assess the time lock. Protocols with governance time locks — delays between when a change is proposed and when it takes effect — are generally safer because they give the community time to review and respond to changes. A protocol where the team can modify contracts instantly carries higher risk.
Step 4: Evaluate total value locked relative to audit coverage. A protocol with hundreds of millions in TVL but only one audit from an unknown firm is a red flag. The security investment should be proportional to the value at risk.
Step 5: Use monitoring tools. Set up alerts for your wallet addresses and the protocols you use. Services like Revoke.cash can help you monitor and revoke token approvals. Block explorers like Etherscan allow you to set up transaction notifications for addresses you want to watch.
Common Pitfalls
New DeFi users frequently make several mistakes that increase their exposure to reentrancy and other smart contract risks. The most common is chasing high yields without understanding the underlying mechanics. If a protocol offers significantly higher returns than competitors, there is usually additional risk involved. The Penpie protocol attracted users by offering enhanced yields on Pendle staking positions, but those enhanced yields came with smart contract risk that many users did not fully appreciate.
Another common mistake is failing to revoke token approvals after interacting with a protocol. Every time you deposit or stake tokens in a DeFi protocol, you grant that protocol permission to transfer your tokens. Even after you withdraw, the approval often remains active. If the protocol is later exploited, the attacker can sometimes use these existing approvals to drain user wallets. Regularly reviewing and revoking unnecessary approvals on platforms like Revoke.cash or Etherscan is a critical security habit.
Concentrating too much capital in a single protocol is another frequent error. Even well-audited protocols can be exploited, as the Penpie incident demonstrates. Diversifying across multiple protocols and chains reduces the impact of any single exploit on your overall portfolio.
Next Steps
Now that you understand the basics of reentrancy attacks, take action to protect your current DeFi positions. Review every protocol where you have deposited funds and check whether they have published audit reports that specifically address reentrancy protection. Audit your current token approvals and revoke any that are no longer needed. Consider moving a portion of your DeFi holdings to protocols with longer track records and more extensive security coverage.
For those interested in going deeper, explore resources from smart contract security firms like Trail of Bits and OpenZeppelin, which publish educational content about common vulnerabilities. Understanding the attack vectors that threaten your investments is one of the most valuable skills you can develop as a DeFi participant. The crypto industry lost over $1.2 billion to hacks in 2024 alone — do not let the next headline be about your funds.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Always conduct your own research before making investment decisions.
certora and formal verification exist and nobody wants to pay for them lol. protocols would rather spend 200k on a audit logo than 50k on actual math proofs
$27M drained from Penpie and the vulnerability was documented in solidity docs for years. audit reports dont matter if nobody reads them
the vending machine analogy for reentrancy attacks is perfect. press the button 100 times before the machine updates its records. exactly what happens on chain
this keeps happening because devs make external calls before updating state. its literally smart contract 101 and protocols with millions in TVL still get it wrong
the DAO hack was 2016 and were still seeing the same vulnerability in 2024. the Penpie exploit proves that knowing about a problem and preventing it are two different things
the gap between knowing and doing is always about deadlines and budgets. protocols ship fast because TVL chases novelty, not security
disagree tbh. a top tier audit costs like 50k. protocols with 100M+ TVL skipping that is not a budget issue, its a culture issue. they treat audits as a checkbox then never look at the report again
checks-effects-interactions pattern. if every dev just followed this one rule wed eliminate 90% of reentrancy exploits overnight
checks-effects-interactions saves most cases but cross-function reentrancy still slips through. the Penpie attack used a different entry point than the one auditors checked
cross-function reentrancy is nasty because you need guards on EVERY external-facing function, not just the withdraw one. one unguarded helper and the whole contract is toast
good explainer for beginners. wish more security content was written this clearly instead of buried in audit reports nobody reads