Can a New Proposal Curb Crypto Laundering on THORChain Following the Bybit Hack?

THORChain is a decentralized protocol that hackers tend to leverage for laundering stolen funds, especially highlighted after the Bybit hack. Will this new proposal get endorsed?

In 2024, rug pulls and DeFi exploits were prominent in the news. However, with North Korean hackers stealing around 500,000 ETH worth over $1.4 billion from Bybit, the trend of major centralized exchange hacks resurfaces. Following the incident, a significant portion of these stolen funds was laundered, predominantly using decentralized platforms, with THORChain becoming the criminals’ go-to.

The Bybit Hack and THORChain’s Involvement

This heist ranks as one of the largest in the crypto realm, provoking fears regarding the robustness of centralized exchanges, despite extensive investments to boost ecosystem security.

THORChain allows users to swap tokens effortlessly, and during the hack aftermath, it was exploited to convert nearly 80% of the stolen ETH into Bitcoin within a 10-day timeframe. This misuse could damage THORChain’s reputation at an inopportune moment.

3.4.25 Executive Summary on Hacked Funds: Total hacked funds of USD 1.4bn around 500k ETH, 77% are still traceable, 20% has disappeared.

Proposal on the Table

In response to the scandal, a developer proposes a modification through which node operators would have the ability to blacklist specific wallet addresses. This would entail maintaining a list of sanctioned addresses, ensuring compliance with laws like those from OFAC or the FBI.

Concerns and Feasibility

Despite support for the plan, many express skepticism regarding its practicality. Critics argue about how effectively node operators can block addresses, especially given hackers’ capacity to generate new wallets. Additionally, concerns arise surrounding transparency and the overall ethos of decentralization that THORChain stands for.

The fate of this proposal hangs in the balance as THORChain’s integrity is scrutinized in light of the Bybit incident, which might invite further investigation from law enforcement regarding these dubious transactions.