Cypher Protocol: Shifting Exploit Losses to Community
Just a couple of weeks ago, Cypher Protocol endured an unfortunate attack by an unknown entity, resulting in the theft of over $1 million worth of cryptocurrencies via a smart contract exploit. Since then, both the developers and the community have been trying to engage with the attacker through social media and NFTs, but to no avail. Consequently, Cypher Protocol has decided to take a different approach—imposing the consequences of their inadequate security measures onto the community.
Embracing a New Direction
Yesterday evening, the Cypher Protocol developers unveiled their recovery plan, which is divided into two stages.
In response to our recent exploit, Cypher is fast tracking an IDO.
Here’s the game plan. pic.twitter.com/DFnJFvj4zD
— cypher ©️ (@cypher_protocol) August 23, 2023
The first stage involves a “pro rata redemption package” that allows users to withdraw a portion of their remaining assets on the platform. However, considering that Cypher Protocol lacks the necessary assets to fully reimburse those who lost funds due to inadequate security measures, the losses will be “socialized” among all members of the community.
“Socializing losses refers to a mechanism by which the adverse effects of an unfortunate event, like a protocol exploit, are distributed across all users rather than being borne by a few. Instead of a minority bearing the brunt of the loss, the consequences are spread more evenly, minimizing individual impact.”
Notably, there was no proposal to socialize losses among those responsible for the platform’s weak security, making it an unequal distribution of accountability.
Currently, $600k owned by Cypher Protocol has been frozen on various centralized exchanges (CEXs), potentially Binance and KuCoin, as the attacker moved their illicit gains to accounts on these platforms. These funds, along with the remaining assets on the platform, will be distributed to users as part of the preparation for the second stage—an Initial DEX Offering (IDO).
Audits and Relaunches
Once users have received their remaining funds, Cypher Protocol intends to undergo audits conducted by OtterSec and Mad Shield in anticipation of the final phase of the recovery plan.
Upon completion of the audit, Cypher Protocol plans to launch an IDO with the aim of raising funds for the platform’s recovery. During this stage, Cypher will mint and distribute 50 million debt tokens to its users. Should Cypher regain stability, these tokens would enable the community to withdraw profits from the future decentralized exchange (DEX) in USDC.
However, there is no guarantee that investors will show interest in funding a platform that has already succumbed to poor security practices. If the fundraising efforts fall short, there is also no assurance that previous investors will be able to recover their losses.
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Editor Notes: The Importance of Secure Crypto Platforms
Instances like the Cypher Protocol exploit highlight the critical importance of robust security measures in cryptocurrency platforms. Investors must carefully evaluate the security practices and protocols implemented by platforms before entrusting their funds. Platforms that prioritize the security of their users’ assets establish trust and credibility within the crypto community.
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