The Passkey Pwned attack exploits the fact that there is no secure communication channel between the authenticator (device) and the service provider (web app). The browser is the primary interface for users to register authenticate passkeys, and thus both sides rely on the browser to communicate honestly. Thus, an attacker can intercept and manipulate this communication within the browser (e.g. via a malicious script or browser extension) and redirect the communication to their server by replacing the WebAuthn calls navigator.credentials.create() and navigator.credentials.get() with their own code.
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