sshd starts with root privileges and then proceeds to, in summary:[1]
1. Parse command line arguments
2. Setup logging
3. Load configuration files
4. Load keys/certificates into memory (notably including private keys)
5. Listen on a socket/port for incoming connections
6. Spawn a child process with reduced permissions (on Linux, using seccomp filters [2]) to respond to each incoming connection request
This backdoor executes at order 0 before sshd's main function is invoked, overwriting internal sshd functions with compromised ones. As some ideas of what the backdoor could achieve:
1. Leak server private keys during handshakes with users (including unauthenticated users) allowing the keys to be passively stolen
2. Accept backdoor keys as legitimate credentials
3. Compromise random number generation to disable perfect forward secrecy
4. Execute code on the host (supplied remotely by a malicious user) with the 'root' permissions available to sshd upon launch. On most Linux distributions, systemd-analyze security sshd.service will give a woeful score of 9.6/10 (10 being the worst).[3] There is essentially NO sandboxing used because an assumption is made that you'd want to login as root with sshd (or sudo/su to root) and thus would not want to be restricted in what filesystem paths and system calls your remote shell can then invoke.
The same attacker has also added code to Linux kernel build scripts which causes xz to be executed (xz at this point has a backdoor compiled into it) during the build of the Linux kernel where xz compression is used for the resulting image. Using this approach, the attacker can selectively choose to modify certain (or all) Linux kernel builds to do some very nasty things:
1. Leak Wireguard keys allowing them to be passively intercepted.
2. Compromise random number generation, meaning keys may be generated with minimal entropy (see Debian certificate problem from a few years ago).
3. Write LUKS master keys (keys used by dm-crypt for actually decrypting disks) to disks in retrievable format.
4, Introduce remote root code execution vulnerabilities into basic networking features such as TCP/IP code paths.
[1] 'main' function: https://anongit.mindrot.org/openssh.git/tree/sshd.c
[2] https://anongit.mindrot.org/openssh.git/tree/sandbox-seccomp...
[3] https://github.com/gentoo/gentoo/blob/HEAD/net-misc/openssh/...