Directed Acyclic Graph (DAG) technology has emerged as a compelling alternative to traditional blockchain architectures. By structuring transaction validation in a non-linear, decentralized web of interconnected nodes, DAG-based systems promise faster throughput, zero transaction fees, and high scalability—making them attractive for next-generation decentralized applications and IoT ecosystems. However, while the core DAG consensus mechanisms have largely remained secure, their surrounding infrastructure has proven vulnerable.
Despite no known breaches of the native DAG structure itself, several high-profile security incidents have targeted services, wallets, smart contracts, and third-party integrations linked to DAG platforms. These events highlight a crucial truth: the weakest link in any crypto ecosystem is rarely the underlying protocol—it’s often the human or peripheral elements built around it.
This article explores five significant security events involving DAG-based networks, analyzes how users were impacted, and provides actionable strategies to protect your digital assets in an evolving threat landscape.
Nano and the BitGrail Exchange Collapse
In 2018, one of the most controversial incidents in DAG-related history unfolded with the collapse of BitGrail, an Italian cryptocurrency exchange hosting Nano (formerly Raiblocks). Nano utilizes a block-lattice architecture—a variant of DAG—where each account has its own blockchain, enabling fast and feeless transactions.
The crisis began when BitGrail announced the loss of approximately 17 million Nano tokens, valued at around $170 million at the time. The exchange’s founder, Francesco Firano, initially blamed the Nano development team, claiming flaws in the protocol caused the leak and demanding a contentious fork to reverse the theft.
👉 Discover how secure wallet practices could have prevented massive crypto losses like this one.
However, subsequent investigations revealed serious internal failures at BitGrail. Audits showed poor security protocols, lack of cold storage, and evidence that Firano had concealed the breach since 2017. Italian authorities eventually ruled that Firano was personally liable for the loss.
Key Takeaway: While Nano’s DAG structure remained intact, users suffered due to centralized custody risks. This case underscores why you should never treat exchanges as long-term wallets—you don’t own your keys, you don’t own your crypto.
IOTA’s Trinity Wallet Breach via MoonPay
IOTA leverages a unique DAG structure called Tangle, designed for machine-to-machine micropayments in IoT environments. Unlike blockchains, every transaction in Tangle must approve two previous ones, eliminating miners and fees. However, until recently, IOTA relied on a centralized coordinator node to prevent attacks—a point of vulnerability.
In February 2020, hackers exploited a third-party service—MoonPay, a crypto payment provider—by distributing a malicious version of its SDK through compromised DNS servers. This allowed attackers to intercept wallet seed phrases from users downloading the official Trinity wallet.
Over 8.5 million MIOTA tokens (worth ~$2 million at the time) were stolen before IOTA Foundation intervened by halting the coordinator and launching an emergency response plan. They later partnered with security firms and law enforcement to trace funds and improve system resilience.
👉 Learn how real-time threat monitoring can protect your digital assets across platforms.
Though the DAG itself wasn’t compromised, this incident highlights the danger of third-party dependencies in decentralized ecosystems. Always verify software sources and avoid downloading wallets from unofficial links.
Hedera Hashgraph Smart Contract Exploit
Hedera Hashgraph uses a patented DAG-based consensus algorithm where nodes exchange “gossip about gossip” to achieve asynchronous Byzantine fault tolerance. While highly performant, its smart contract functionality introduced new attack vectors.
On March 9, 2023, a critical vulnerability in Hedera’s smart contract layer enabled attackers to drain liquidity pools on decentralized exchanges like Pangolin, SaucerSwap, and HeliSwap. Approximately $600,000 worth of DAI, USDT, USDC, and wHBAR was stolen.
The attack was mitigated within hours: bridges were paused, proxy access to the mainnet was disabled (due to partial centralization), and a patch was deployed within 41 hours. Notably, retail wallets remained unaffected—only protocol-level contracts were exploited.
This marks one of the few cases where a native component of a DAG system was directly compromised, emphasizing that even advanced consensus models are only as secure as their implementation.
Sui Network: From Discord Hack to Code Vulnerability
Sui Network, launched in May 2023, combines Proof-of-Stake with a DAG-based consensus engine called Bullshark to process simple transactions instantly without full network agreement.
Before its mainnet launch, security firm CertiK discovered a critical infinite loop bug—dubbed “HamsterWheel”—that could be triggered by a malicious smart contract. If exploited, it wouldn’t crash nodes but render them unresponsive by forcing endless computation cycles.
The Sui team quickly patched the flaw and awarded CertiK a $500,000 bug bounty, showcasing proactive security culture. But earlier, in August 2022, Mysten Labs’ Discord server was hacked, with attackers posting fake airdrop links that led users to phishing sites.
While no protocol-level breach occurred, user funds were lost due to social engineering—an ongoing risk in fast-moving Web3 communities.
Avalanche’s DeFi Protocol Attacks
Although Avalanche uses a hybrid architecture (with X-Chain based on DAG principles), its DeFi ecosystem has faced repeated exploits. In September 2021, Vee.Finance, a lending platform on Avalanche, lost 8,804 ETH and 214 BTC (~$36 million) due to a flawed price oracle that misread decimal places—allowing attackers to manipulate asset values.
Then in February 2023, two more protocols fell:
- Dexible, a multi-chain aggregator, suffered losses exceeding $2 million via unauthorized token transfers using its selfSwap function.
- Platypus Finance experienced an $8.5 million flash loan attack exploiting unverified code in its asset contracts.
These incidents weren’t direct DAG failures but revealed systemic weaknesses in DeFi smart contract design and permission management.
Frequently Asked Questions (FAQ)
Q: Has any DAG protocol ever been hacked at the protocol level?
A: No known attacks have successfully compromised the core consensus mechanism of a DAG network like IOTA’s Tangle or Nano’s block-lattice. Most breaches occur at application or service levels.
Q: Are DAGs more secure than blockchains?
A: DAGs offer different trade-offs—high speed and scalability—but aren’t inherently more secure. Their security depends on implementation, decentralization level, and external integrations.
Q: Can smart contracts on DAG platforms be exploited?
A: Yes. As seen with Hedera and Avalanche-based apps, smart contracts are common attack vectors regardless of underlying ledger technology.
Q: Is using a centralized exchange safe for storing DAG-based tokens?
A: No. Exchanges are frequent targets. Always transfer funds to a private wallet where you control the keys.
Q: What is a “seed phrase,” and why must I protect it?
A: A seed phrase is a human-readable form of your private key. If compromised, attackers can fully access your wallet—never share it or store it digitally.
Q: How do flash loan attacks work on DAG-based DeFi apps?
A: Flash loans allow borrowing large sums without collateral (if repaid in one transaction). Attackers use them to manipulate prices or exploit logic flaws in smart contracts—even on DAG-supported chains.
How to Protect Yourself When Using DAG Platforms
While DAG technologies continue to evolve securely at their core, user vigilance remains essential:
- Use Reputable Services: Research wallets, exchanges, and dApps before connecting your wallet.
- Control Your Private Keys: Use non-custodial wallets—preferably hardware (cold) wallets.
- Enable 2FA and Use Strong Passwords: Protect all accounts with unique credentials and two-factor authentication.
- Stay Informed: Follow official channels for updates on vulnerabilities or patches.
- Avoid Phishing Traps: Double-check URLs; never click on unsolicited links in emails or social media.
- Revoke Unused Permissions: Regularly audit which dApps can access your tokens using tools like Revoke.cash.
- Diversify Investments: Spread risk across multiple platforms and asset types.
Even platforms like Obyte, another DAG-based system with active bug bounty programs on Immunefi, remain targets by association. No system is immune—only well-defended ones survive.
👉 Secure your crypto journey today with tools trusted by millions worldwide.
By combining technical awareness with cautious behavior, you can confidently navigate the innovative yet complex world of DAG-powered networks.