Bybit has officially confirmed its involvement in a proposal requesting that decentralized finance (DeFi) protocol ParaSwap return fees accumulated from swaps executed by the Lazarus Group. The transactions in question involved digital assets stolen from Bybit.
Bybit Requests ParaSwap to Freeze and Return Stolen Funds
On March 4, a proposal was submitted on ParaSwap’s decentralized autonomous organization (DAO) forum, urging the platform to freeze and return 44.67 Wrapped Ether (wETH), valued at nearly $100,000, to a designated wallet address. The request initially sparked skepticism within the community, with several DAO members calling for verification before proceeding.
To validate its request, Bybit published an official statement on its X account on March 5, confirming its direct involvement in the proposal. The confirmation reignited discussions within the DAO, as members debated the broader implications of refunding fees derived from illicit transactions.
ParaSwap Community Weighs Ethical and Legal Concerns
Prominent DeFi researcher and ParaSwap DAO delegate Ignas highlighted the complexities surrounding the request in a post on X. He pointed out that while retaining the funds could bring regulatory scrutiny and reputational risks, issuing a refund might set a precarious precedent for the DeFi industry.
According to Ignas, the DAO profiting from the hack reflects poorly on its integrity, whereas returning the funds would demonstrate solidarity within the industry. However, he cautioned that refunding the fees could contradict DeFi’s foundational principle—”Code is law.”
“If the DAO returns these funds, what happens in future cases? This could set a dangerous precedent,” Ignas noted.
He also emphasized that this situation could have implications for ThorSwap, another protocol used by the hackers to convert stolen assets. By February 27, THORChain’s swap volume had surged past $1 billion as the hackers leveraged the protocol to process stolen funds. By March 4, THORChain had generated $5 million in fees, with its total swap volume reaching $5.4 billion. If Bybit extends its refund request to THORChain, it could potentially reclaim a larger portion of the stolen funds.
DAO Members Debate Bybit’s Refund Request
The proposal sparked a heated debate among ParaSwap DAO members, with SEED Gov outlining three potential responses:
- Return the full amount to Bybit.
- Reject the request and retain the fees.
- Negotiate a structured return, keeping 10% of the funds as a bounty, in alignment with Bybit’s existing bug bounty program.
The DAO community remained divided. Some members supported a full refund, while others proposed keeping a percentage of the funds in exchange for legal immunity from future claims. Conversely, some members opposed returning the funds altogether, arguing that ParaSwap’s reputation could suffer if it complied with the request.
A DAO member referenced a similar case from 2013, in which another protocol sought a refund from ParaSwap after hackers exploited it to swap assets. At the time, the DAO declined to refund the fees, reinforcing the argument that the same decision should be upheld now.
The outcome of Bybit’s proposal remains uncertain as the ParaSwap community continues to deliberate. The case underscores the ongoing tension between DeFi’s core principles and evolving industry ethics, as protocols navigate the challenges of security, transparency, and accountability. Whether ParaSwap returns the funds or not, the decision will likely influence future policies regarding stolen asset recovery within the DeFi ecosystem.
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Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.
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