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ETH Term Labs suffers governance attack and loses $8.5 million
Term Labs has become the latest lending agreement to be attacked. Due to loopholes in treasury governance rules, the attacker successfully extracted a total of $8.5 million in ETH and DAI.
Term Labs is the founder of Term Finance, a decentralized lending protocol that provides fixed-rate ETH loans. Term Labs aims to provide more predictable lending rates and claims that its team has traditional quantitative trading experience from former Citibank and Morgan Stanley experts.
Term Labs said the attack affected some of its vaults and the actual damage is still being evaluated.
"We have noticed a governance attack that affects Term Treasury. We will release more details after further investigation."-- Term Labs (@term_labs), August 23, 2026
Preliminary data show that the attacker did not use malicious vulnerabilities, but only used their governance influence, which is consistent with the protocol's design intent.
As of August 23, 2026, the total value locked in by Term Labs exceeds US$25 million. The agreement has $3.92 million in active loans and a higher amount of collateral in the treasury. Term Finance's treasury held a total of $12.25 million, meaning the attack almost exhausted the agreement's borrowing capacity.
The attack on Term Labs occurred shortly after several high-profile attacks, including the Maya Protocol and The Sandbox casting attack.
How can an attacker steal funds from Term Labs?
On-chain data shows that the attacker's wallet initially obtained 2 ETH pieces through Tornado Cash. This initial source of funding has previously been linked to attacks by North Korean hackers.
The attacker took control of four of Term Labs 'five stolen vaults by holding 100% governance tokens.
Term Labs offers a loan vault similar to Morpho, where anyone can deposit funds and earn passive income. However, Term Labs also uses Aragon as its governance platform. Users can choose to package treasury deposits into governance tokens.
To obtain governance tokens, users must manually convert the share tokens obtained in the vault into a special governance token. By performing the second operation, the attacker gains an unfair governance advantage and can use governance influence to steal treasury funds.
The attacker holds governance tokens worth only a few dollars, but can have disproportionate influence and divert all reserve funds from the vault.
The attackers submitted their own proposal on August 17, which included concealment operations that were not immediately visible to voters. After the six-day waiting period ended, the attacker was able to change vault parameters, allowing funds to be stolen from five USDC lending vaults.
After transferring the funds, the attacker concentrated the funds in a known wallet that held $1.6 million in DAI and approximately $6.9 million in ETH. These funds have not yet been mixed or transferred, while in other attacks, attackers usually carry out mixed operations within the first hour.
Why do governance attacks succeed so often?
Many Web3 protocols build some kind of governance mechanism, often related to holding specific tokens.
The presence of giant whales, team allocations or aggressive buyers means reserves, DAO vaults or other pools of funds can be attacked and stolen.
The adoption rates of DAO and Web3 organization proposals vary, and not all proposals can be understood by ordinary users. This means that interested parties can put forward proposals that are beneficial to them and successfully vote on them.
