Bybit Demands Return of Hack Fees from ParaSwap DAO

In a significant move within the decentralized finance (DeFi) sector, Bybit has confirmed its involvement in a proposal urging the ParaSwap DAO to return fees accrued from transactions executed by the notorious Lazarus Group, who utilized digital assets stolen from the exchange. This proposal, which surfaced on March 4, requests the freezing and return of 44.67 Wrapped Ether (wETH), valued at nearly $100,000, to a specified wallet address.

Initial Skepticism and Verification

The proposal initially faced skepticism from several members of the ParaSwap DAO, who demanded verification before proceeding. On March 5, Bybit took to its official X account to confirm its authorship of the proposal, clarifying its intentions regarding the recovery of the stolen funds.

Implications of Returning the Funds

One DAO member, Ignas, expressed concerns about the optics of profiting from the hack, stating that returning the funds would demonstrate solidarity with another player in the industry. He cautioned that retaining the funds could lead to increased regulatory scrutiny and potential legal complications for the DAO.

Furthermore, the ParaSwap delegate highlighted the potential ramifications for ThorSwap, the platform used by the hackers to convert the stolen assets into various cryptocurrencies. As of February 27, the swap volume on THORChain surged past $1 billion, with the Bybit hackers utilizing the protocol to facilitate their transactions. By March 4, THORChain’s volume had skyrocketed to $5.4 billion, showcasing the extent of the hackers’ activities.

Potential Recovery Strategies

If Bybit decides to pursue a similar refund request from THORChain, the exchange could potentially recover a significantly larger sum. DAO member SEED Gov outlined several possible courses of action for the ParaSwap community: returning the full amount, outright refusing the request, or negotiating a structured return that includes a 10% bounty, aligning with Bybit’s existing bug bounty program.

The community’s response has been divided, igniting a heated debate within the ParaSwap DAO forum. Some members advocate for the return of the funds, while others propose a structured return that would allow them to retain the 10% bounty and eliminate any future liabilities for the DAO.

Concerns Over Reputation and Precedent

Conversely, a faction of ParaSwap DAO members opposes the idea of returning the funds to Bybit. One community member warned that agreeing to return the funds could tarnish ParaSwap’s reputation. Another DAO member recounted a similar situation in 2013 when a protocol requested a refund of fees after hackers exploited it to swap assets. This member emphasized that the decision not to refund processing fees back then should guide their current stance.

As the discussion unfolds, the ParaSwap DAO faces a critical decision that could set a precedent for how decentralized organizations handle similar situations in the future. The outcome of this proposal may not only impact Bybit and ParaSwap but could also resonate throughout the broader DeFi landscape.

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