Bybit has confirmed that it is behind a proposal requesting the return of fees earned by DeFi protocol ParaSwap from transactions linked to the Lazarus Group.
The North Korean hacking group allegedly used digital assets stolen from Bybit to conduct swaps on ParaSwap, prompting the exchange to seek the recovery of 44.67 Wrapped Ether (wETH), worth nearly $100,000.
The proposal, posted on ParaSwap’s decentralized autonomous organization (DAO) forum on March 4, initially faced skepticism from community members, who demanded verification before considering the request. Bybit addressed these concerns on March 5, posting on its official X account to confirm its involvement in the request.
The situation has ignited debate within the ParaSwap DAO, with members weighing the ethical, legal, and precedent-setting implications of returning the funds. Some argue that holding onto profits generated from a hack reflects poorly on the DAO and could attract regulatory scrutiny.
DeFi researcher and ParaSwap DAO delegate “Ignas” highlighted the dilemma on X, emphasizing that while keeping the funds might lead to legal complications, refunding them could establish a precedent that pressures DeFi protocols to return fees in future incidents. The researcher warned that complying with Bybit’s request would undermine DeFi’s core principle that “code is law,” as ParaSwap earned the fees legitimately through smart contract transactions.
They also pointed out the broader implications for ThorSwap, another DeFi protocol used by the hackers to convert stolen assets. Bybit’s hackers reportedly leveraged ThorSwap to conduct swaps, contributing to THORChain’s trading volume surpassing $5.4 billion by March 4 and generating $5 million in fees.
If Bybit pursues a similar request with THORChain, it could potentially recover a far greater sum.
As discussions continue, DAO member SEED Gov has outlined three possible courses of action: fully returning the funds, refusing the request, or negotiating a structured return that allows ParaSwap to retain 10% as a bounty—aligning with Bybit’s existing bug bounty program. The community remains divided, with some advocating for full compliance, while others favour a structured return to mitigate potential liabilities.
However, opposition within the DAO remains strong. Some members argue that returning the funds would damage ParaSwap’s reputation, while others recall a precedent from 2013 when a similar request was denied. They contend that since the DAO previously refused to refund fees under comparable circumstances, there is no reason to rule differently now.
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