About two weeks ago, Cypher Protocol was attacked by an as-of-yet unknown bad actor, who stole over $1 million worth of crypto through a smart contract exploit.
Since then, both the project’s devs and the community have attempted to reach out to the attacker via social media and impromptu NFTs. However, the perpetrator did not deign to reply, prompting Cypher Protocol devs to switch to a new course of action: dumping the consequences of their poor security onto their community.
This Is The Way
Yesterday evening, Cypher Protocol devs laid out their recovery plan, comprised of 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 consists of a “pro rata redemption package” that will allow Cypher Protocol users to withdraw some of their assets still available on the platform. However, since Cypher does not have nearly enough assets to repay customers who lost funds due to the platform’s insufficient security measures, the losses will be “socialized” between all members.
“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.”
Naturally, a socialization of losses among the people responsible for the poor security that allowed the hack to be carried out in the first place was not proposed.
So far, $600k belonging to Cypher Protocol has been frozen across various CEXs – probably Binance and KuCoin, since the attacker transferred his ill-begotten gains to accounts on these platforms. These funds, along with the rest of the funds still on the platform, will be transferred to users in preparation for the second stage consisting of an IDO.
Audits and Relaunches
Once users receive the remainder of their funds, Cypher Protocol will be audited by OtterSec and Mad Shield in preparation for the final stage of the recovery plan.
As soon as the audit is completed, Cypher Protocol intends to launch an Initial DEX Offering in a bid to raise funds that would allow the platform to recover. At this stage, Cypher will mint and airdrop 50 million debt tokens to its users. If Cypher recovers, these tokens would allow the community to withdraw the future DEX’s profits in USDC.
Unfortunately, there is no guarantee that investors will prove interested in funding a platform that was already destroyed by poor security measures.
If the funding round falls flat, there is no guarantee that prior investors will be able to recoup their losses.
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