Cypher Protocol reveals $600K of stolen funds is now frozen on CEXs

August 18, 2023 Coin Telegraph

Cypher Protocol reveals 0K of stolen funds is now frozen on CEXs

CEX

Solana-based Cypher Protocol has managed to stop around $600,000 of stolen funds from exiting various centralized exchanges.

Solana-based decentralized futures exchange Cypher Protocol has managed to freeze $600,000 worth of crypto stolen from an Aug. 7 security exploit.

In an X (Twitter) post on Aug. 18, Cypher Protocol reported that more than half of the funds stolen have been successfully frozen across centralized exchanges with the help of several independent blockchain investigators.

“The return of these funds will be predicated on the cooperation of these CEXs and seizure warrants being issued by law enforcement,” it said.

update from cypher

~$600k has been frozen across CEXs, the return of these funds will be predicated on the cooperation of these CEXs and seizure warrants being issued by law enforcement
— cypher ©️ (@cypher_protocol) August 17, 2023

Cypher was exploited on Aug. 7 for around $1 million resulting in the protocol halting its smart contracts.

The DeFi exchange enables lending and borrowing through primary accounts with multiple cross-collateralized sub-accounts. However, the vulnerabilities prevented proper tracking of isolated sub-accounts and insufficient margin checks before borrowing, explained blockchain security firm Halborn.

The attacker exploited these code vulnerabilities using multiple accounts to drain an estimated $1 million in various crypto assets including USDT, USDT, SOL, wETH, and a handful of other altcoins.

On Aug. 10, the team managed to make contact with the hacker after it had offered a 10% white hat bounty worth around $120,000.

Two days later, the protocol said the hacker had missed the deadline to return the funds and opened the bounty up to the public. They also hinted at knowing the partial identity of the exploiter.

The reward bounty is now open to the public pic.twitter.com/fEIiQ8rTKN
— cypher ©️ (@cypher_protocol) August 12, 2023

On Aug. 16, Cypher announced a redemption plan and “socialized losses policy” to distribute remaining assets to affected users. A redemption package with protocol assets will be distributed pro rata based on user share, it stated.

“The value used for redemption in relation to a margin account will be based on a snapshot of the account’s assets at the time Cypher protocol was frozen,” totaling around 31 cents on the dollar it added.

*Screenshot from Cypher redemption package. Source: Cypherlabs*

In its latest statement, Cypher thanked blockchain sleuth ZachXBT, adding “he was invaluable to the Cypher team and the main contributor in the initial freezing of funds across multiple CEXs, and also aided in tracking the attacker.”

Cointelegraph reached out to ZachXBT for comment but had not heard back at the time of writing.

According to the De.Fi Rekt database, the Cypher exploit was not the largest so far in August, coming in third.

DeFi protocol Zunami suffered a $2.1 million flash loan attack on Aug. 13 and leveraged yield aggregation platform Steadefi was exploited for $1.1 million on Aug. 7.

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Don’t be mean to CEXs — Crypto relies on them

June 21, 2023 Coin Telegraph

Bybit

Centralized crypto exchanges have a crucial role left to play in bridging traditional finance with decentralized cryptocurrencies.

However, there are certain factors that may hinder this bright future, including the zero-sum nature of the derivatives market. Crypto needs continuous adoption and capital injection to increase in value — the psychological tendencies that tend to encourage the fear of missing out (FOMO) and excessive trading.

Money itself is not inherently valuable but rather a vessel for value. Consequently, the cryptocurrency market is a zero-sum derivatives market where individuals trade against each other based on differing expectations of the value it represents rather than the actual value itself.

Zero-sum nature of the derivatives market

A zero-sum game is a situation where any gains made by one participant come at the expense of losses for another participant. In derivatives markets, options and futures are considered zero-sum because the contracts represent agreements between two parties, and if one trader loses, the wealth is transferred to another trader.

The zero-sum nature can create a highly competitive and speculative environment where traders are focused on short-term gains rather than the underlying value and potential of the cryptocurrencies. Consequently, this distracts from the ultimate goal of decentralization and the establishment of a robust, reliable framework for value exchange.

Need for adoption and capital injection

For a cryptocurrency to increase in value, more individuals and businesses must use and invest in that cryptocurrency. The greater the adoption and capital inflow, the more stable and valuable the cryptocurrency can become. However, as cryptocurrencies gain popularity and value, there is a tendency for users to gravitate toward centralized exchange (CEX) platforms because of their higher efficiency, reliability and more user-friendly interfaces.

*Change in market share for top CEXes, March-May 2023. Source: CCData*

Furthermore, the reliance on continuous adoption and capital injection can create a cycle where the value of cryptocurrencies is predominantly driven by speculative trading and market sentiment rather than underlying technological advancements. This dynamic can lead to an unstable market environment and hinder the development of an open, resilient financial system based on decentralized principles.

The allure of making quick profits through crypto trading is difficult to resist, and this collective drive to trade often results in capital flowing toward the exchanges that facilitate these trades and charge fees in the form of cryptocurrencies with limited supply. This presents a dilemma: Cryptocurrencies were intended to dismantle centralized power structures, but the pursuit of profit draws users to the most reliable, efficient CEX platforms, and these platforms consistently attract more users, accumulate more wealth through fees and then become more centralized and powerful.

So, why do we still need CEXs?

CEXs play a vital role in the journey toward achieving a truly decentralized ecosystem. They act as a crucial bridge between traditional financial systems and the emerging world of cryptocurrencies. By refining their operations and implementing robust security infrastructure, CEXs are not only facilitating the seamless transition into decentralized finance but also actively driving its widespread adoption.

One of the primary advantages of CEXs is their ability to provide liquidity and foster market depth within the cryptocurrency ecosystem. They create an active marketplace where traders can efficiently buy and sell digital assets. With a sufficient number of buyers and sellers, CEXs reduce price volatility and enable fair price discovery, ultimately contributing to the stability and growth of the crypto market.

Another key reason is that they serve as a significant entry point for newcomers to the crypto space. Their user-friendly interfaces and intuitive trading tools make it easier for individuals with limited technical knowledge to navigate the complexities of cryptocurrency trading. By providing a familiar environment akin to traditional financial platforms, CEXs lower the barriers to entry and attract a broader user base.

There are several other factors that contribute to the need for CEXs, including their efficient risk management measures, around-the-clock support services and convenient fiat on-ramps, among others.

While the goal of the cryptocurrency industry and blockchain technology is decentralization, it is essential to recognize the indispensable role of centralized exchanges in this journey. As the industry continues to evolve and innovate, striking a balance between decentralization and the need for centralized exchanges becomes crucial for achieving a sustainable, inclusive, decentralized future.

It is our responsibility to approach this delicate balance with caution and avoid any tendencies toward forceful expansionism. Let us always remember the age-old wisdom that power corrupts and absolute power corrupts absolutely.

Hao Yang has served as the head of options at Bybit since 2021. He previously provided consultancy services for OKEx Options. Prior to that, he worked as a quantitative analyst modeling energy options with exotic pay-off structures at energy firm PZEM and as a trader at Optiver, where he focused on interest rates and index options. Hao began his crypto journey as a miner before building the trading system for a crypto exchange startup. He holds an MSc in finance from Vrije Universiteit Amsterdam’s Duisenberg Honors Programme in Quantitative Risk Management.

Blockchain technology will eventually establish a reliable framework for exchanging value, effectively decentralizing power and financial control. This vision represents a revolutionary paradigm shift that we should wholeheartedly embrace.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

CEX trading volumes decline in April after months of growth: Kaiko

May 4, 2023 Coin Telegraph

Binance

After three months of consecutive growth, centralized exchange trading volumes fell to their lowest this year in April.

Centralized crypto exchanges have seen a dip in trading volumes in April for the first time in three months as digital assets cool off from a hot first quarter.

According to blockchain data provider Kaiko, trading volumes on centralized exchanges have fallen back following three consecutive months of gains.

April’s volumes were almost half of those in March at roughly $500 billion, according to the data. The month has been the lowest so far this year in terms of volumes with March being the highest.

The data provider noted that volumes had reached pre-FTX collapse levels until April's decline. It also noted that markets remain above 2020 levels in terms of trade volumes.

“Overall, however, the crypto market remains significantly larger than it was before the 2020 bull run,” said Kaiko.

Trade volumes on #CEXs declined in April after rising for three consecutive months and surpassing pre-FTX levels in March.

Overall, however, the crypto market remains significantly larger than it was before the 2020 bull run.#crypto #TradeVolume #liquidity #CEX pic.twitter.com/cmftFD3Qya
— Kaiko (@KaikoData) May 3, 2023

According to data from The Block, legitimate centralized exchange spot volume decreased by 43.8% to $400.5 billion in April.

“The majority of the decrease is due to Binance adding back fees on BTC pairs,” it noted. Binance remains the market leader with a dominance of 71.6%, according to the data.

Furthermore, Binance has a 24-hour trading volume of around $10 billion which is significantly larger than its nearest rival Coinbase with $1.1 billion, according to CoinGecko.

In late April, Cointelegraph reported that Binance’s Bitcoin balance increased by over 50,000 BTC, roughly $1.5 billion, in a month. The move preceded the sell-off as BTC hit heavy resistance just over the $30,000 level.

U.S.-based crypto exchange Coinbase has seen its app downloads also in decline in recent months as trading volumes dwindle in the sideways market, according to a report from Yahoo News.

Tom Grant, the VP of research at Apptopia, a research firm that tracks app usage metrics, said the shrinking app usage paints a bearish picture for the company.

The CEX volume decline comes as digital asset markets began to retreat from their 2023 highs in mid-April. On April 16 total market capitalization hit an eleven-month high of $1.34 trillion. However, markets have declined 7.5% to $1.24 trillion since then.

Since the beginning of the year, crypto markets have gained 50% but they have remained largely range bound for the past six weeks or so.

Analysts have hinted that the correction is likely to continue as markets have been somewhat overheated for the first quarter of the year.

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Crypto users turned to DEXs, loaded up on USDC after Silicon Valley Bank crash

March 17, 2023 Coin Telegraph

CEX

The collapse of FTX led to a similar exodus from centralized exchanges, as users worried they may lose access to funds during crises.

The collapse of Silicon Valley Bank saw investors loading their bags with USD Coin (USDC), along with an exodus of funds from centralized exchanges (CEXs) to decentralized exchanges (DEXs).

Outflows from centralized exchanges often spike when the markets are in turmoil, blockchain analysis firm Chainalysis said in a March 16 blog post, as users are likely worried about losing access to their funds when exchanges go down.

*Funds sent from CEXs to DEXs following SVB’s collapse. Source: Chainalysis.*

The Chainalysis data shows that hourly outflows from CEXs to DEXs spiked to over $300 million on March 11, soon after SVB was shut down by a Californiaregulator.

A similar phenomenon was observed during the collapse of cryptocurrency exchange FTX last year, amid fears that the contagion could spread to other crypto firms.

However, data from the blockchain analytics platform Token Terminal suggests that the surge in daily trading volumes for large DEXs was short-lived in both cases.

*Daily trading volumes for large DEXs from September to March. Source:* *Token Terminal*

USDC was identified as one of the top assets being moved to DEXs, which Chainalysis said was unsurprising given that USDC depegged after stablecoin issuer Circle announced it had $3.3 billion in reserves stuck on SVB, prompting many CEXs like Coinbase to temporarily halt USDC trading.

What was surprising, Chainalysis noted, was the surge in USDC acquisitions on large DEXs such as Curve3pool and Uniswap. “Several assets saw large spikes in user acquisition, but none more than USDC,” the blockchain analysis firm wrote.

*Token acquisitions on Uniswap from March 7 to March 14. Source: Chainalysis*

Chainalysis theorized that this was due to confidence in the stablecoin, with some crypto users loading up on USDC while it was relatively cheap and betting that it would regain its peg — which it did on March 13 according to CoinMarketCap.