Bybit asks DAO to return fees earned from hack transactions
Bybit has confirmed its involvement in a proposal aimed at the decentralized finance (DeFi) protocol ParaSwap, requesting the return of fees accrued from swaps executed by the Lazarus Group using stolen digital assets from the exchange.
On March 4, an official proposal was submitted to ParaSwap’s decentralized autonomous organization (DAO) forum, calling for the freezing and return of 44.67 Wrapped Ether (wETH), approximating a value of nearly $100,000, to a specified wallet address. Initial reactions to the proposal were mixed, with several members raising concerns and insisting on verification prior to its advancement. Bybit addressed these concerns by sharing verification on its official X account on March 5, confirming its role in suggesting the return of the funds.
This move by Bybit has ignited discussions among DAO members regarding the long-term ramifications of returning the fees in question.
In a notable intervention, Ignas, a DeFi researcher and delegate within the ParaSwap DAO, raised critical points on the potential implications for governance and community perception. He expressed that profiting from the hack could create negative optics for the DAO and described the act of returning the funds as supportive of a fellow industry member. However, Ignas also warned about the precarious nature of such a refund, suggesting that it could establish a troubling precedent for DeFi by conflicting with the principle that “code is law.” This, he argued, has the potential to complicate future decisions regarding similar cases.
Furthermore, Ignas delineated the operational challenges posed by the hackers’ conversion of stolen funds via ThorSwap. Since February 27, the swap volume on THORChain surged past $1 billion due to the hackers utilizing the protocol, and by March 4, THORChain had accrued $5 million in fees, with an overall volume of $5.4 billion. Should Bybit opt for a similar refund request from THORChain, it could facilitate the recovery of significantly higher amounts.
To address the various opinions surrounding the proposal, DAO member SEED Gov outlined three potential courses of action for discussion: returning the entire sum, outright refusal of the request, or negotiating a structured return that would allow retaining 10% of the original amount as a bounty under Bybit’s bug bounty framework.
The community’s response has been divided, fueling an active debate in the ParaSwap DAO forum. While some members advocate for the complete return of the funds, others propose that a structured return could be arranged, provided it includes a provision for future liabilities concerning the DAO. Conversely, a faction within the DAO firmly opposes the return, arguing that concessions to Bybit could tarnish ParaSwap’s reputation and may lead to further complications in subsequent cases.
A particular DAO member highlighted historical context from 2013, recalling a situation where a similar request for fee reimbursement was rejected, indicating that there was no compelling reason to deviate from that precedent this time around.
This scenario not only underlines the intricate governance challenges faced by decentralized organizations but also reveals how financial malfeasance in the crypto space can lead to contentious discourse about ethics and legalities within DeFi communities. The outcome of the ParaSwap DAO voting process on Bybit’s proposal remains to be seen, but it signifies a critical moment in assessing the future direction of DeFi protocols in navigating complex ethical and operational dilemmas.
