Author: Frank, PANews

A major security incident has occurred again in the cryptocurrency exchange sector, following the theft at Bybit exchange. On the evening of February 21, 2025, on the X platform, on-chain detective ZachXBT issued an alert, stating that abnormal fund outflows had been detected from addresses associated with Bybit exchange, involving an amount as high as $1.46 billion. After confirmation from security teams such as SlowMist and PeckShield, it was determined that the incident involved hackers using UI deception attacks to control Bybit's ETH multi-signature cold wallet, stealing 491,000 ETH (approximately $1.4 billion at the day's price). After the news broke, the market quickly fell into panic: users rushed to withdraw funds, the price of ETH plummeted by 8%, and over $400 million in contracts were liquidated across the network—a collapse reminiscent of FTX seemed imminent.

Fortunately, Bybit's official response was swift, explaining that one ETH cold wallet had been stolen, and that other asset categories were unaffected, assuring that there were sufficient funds to meet user withdrawal demands. Additionally, exchanges like Bitget and Binance transferred over $4 billion in funds to address the crisis, temporarily calming the situation. The price of Ethereum rebounded to above $2,700 after a day of sharp decline.

The ripples from the incident have not yet subsided, and the hacker theft has once again sounded the alarm for the industry, especially as the FTX incident is nearing its conclusion and repayments are beginning. As the primary asset stolen in this incident, what profound impact will it have on the Ethereum ecosystem? This may be something the industry needs to contemplate further.

Limited Cross-Chain Bridge Liquidity, Hackers May Find It Difficult to Sell Coins Quickly

The market is the most affected part. Before the news broke, the price of ETH had risen to a peak of $2,845. Under the catalyst of market panic, the price of ETH briefly dropped by 8%, with over $400 million in liquidations across the network. Thanks to Bybit's quick response and liquidity assistance from exchanges like Bitget and Binance, the price of ETH recovered within 24 hours, and market panic temporarily eased.

However, the majority of the funds stolen by the hackers have not yet been sold, and in the following period, the hackers will urgently need to launder this batch of funds on-chain and exchange them for other cryptocurrencies. Therefore, there will still be a certain test of ETH's on-chain absorption capacity.

Moreover, analysis from several security companies indicates that the perpetrators are a North Korean hacker group. If this assumption is true, the possibility of recovering the funds becomes very slim.

According to data from Artemis, in the past seven days, the on-chain outflow of ETH was only $196 million, while the inflow was about $149 million. If the hackers choose to transfer these funds to other chains in a short period, the on-chain outflow of ETH could potentially increase tenfold in a short time. The reality that ETH's on-chain depth will be under pressure in the near future is unavoidable.

Most cross-chain bridges' liquidity pools cannot withstand such a large fund transfer. For example, the Chainflip cross-chain bridge used by the hackers to transfer funds on February 22 has a total liquidity of about $17 million. Other cross-chain bridges also seem unable to accommodate such a volume of funds.

On the other hand, the ETH ecosystem may be the most decentralized public chain after Bitcoin. The hackers are unlikely to choose to transfer funds to the ecosystems of other public chains. From this perspective, the hackers may still primarily focus on mixing coins in the short term and will not conduct large-scale fund conversions on-chain. Therefore, the test of on-chain depth may not be immediate, and the market impact will be limited under gradual digestion.

Reflecting on the "Complexity Premium" of Smart Contracts, Should Ethereum Move Towards Simplification?

In addition to market impacts, Ethereum's technical roadmap may also undergo some changes as a result. Looking back at a similar hacking incident in 2024, during the theft of WazirX, the hackers also stole ETH tokens.

The reasons are twofold: on one hand, ETH is the second-largest market cap token after BTC, and its market depth will not collapse due to one or two attacks, making it a valuable asset type for hackers. On the other hand, it relates to the complex smart contract functionalities of Ethereum. Compared to other new public chains like Solana, Ethereum's Turing completeness grants infinite possibilities to smart contracts but also leads to complex layers of contract interactions (e.g., multi-signature wallets relying on multiple proxy calls to Safe contracts), resulting in a much larger attack surface than Bitcoin's UTXO model or Solana's native account model.

Therefore, as more and more security attacks occur on Ethereum, the upcoming technical roadmap may consider how to simplify smart contracts or introduce technological changes that confirm multi-signature wallet transactions through biometric features or similar hardware devices.

From an ecological perspective, projects within the Ethereum ecosystem that enhance security through hardware may find certain opportunities. This includes Safe, which was used in this incident, potentially mandating the introduction of "secondary semantic verification" (e.g., visual verification of transaction content signatures) in the future, similar to the physical confirmation mechanisms of hardware wallets.

Of course, the premise of these potential changes is that the Ethereum ecosystem will take this incident as a wake-up call. After all, in a state of poor data performance, security has become the last line of defense for the Ethereum ecosystem. If security is compromised, it may lead to greater disappointment in the Ethereum ecosystem from the market.

A Wake-Up Call for the Industry: It's Time to Build a Hacker Firewall

Certainly, this incident has deeper potential implications for the entire cryptocurrency industry ecosystem. For instance, the asset management methods of exchanges may require more reform.

Could this also spur the development of exchange insurance services? The previous collapse of FTX prompted exchanges to pay more attention to asset transparency, with many publicly disclosing their asset sizes. From a certain perspective, the widespread implementation of this measure has been a significant reason why Bybit did not repeat the same mistakes. In contrast, another reason why this hacking incident did not cause a large-scale bank run is that multiple exchanges and industry institutions provided timely assistance, quickly stabilizing market sentiment.

From the previous FTX collapse, the last straw that broke the camel's back was the occurrence of a bank run. Fortunately, Bybit received assistance from peers, but regardless, this assistance is essentially a human factor based on weighing pros and cons. If another exchange faces a similar crisis in the future and does not receive assistance from peers after evaluation, will the market be drawn back into the FTX cycle? Therefore, perhaps exchanges or third parties will have more motivation to promote the development of exchange insurance services after this incident.

In addition, the cryptocurrency world has long been troubled by North Korean hackers. To prevent similar incidents from occurring, the industry must further strengthen its security levels. On the other hand, whether the crypto world will initiate a wave of establishing hacker firewalls also becomes a topic worth关注 for the entire industry. For example, could various project parties establish a unified firewall to block the flow of hacker funds? Of course, this process would be much more complex, and how to achieve such measures without sacrificing decentralization may become the main topic of discussion. Just as CZ suggested that Bybit stop withdrawals after the incident, it sparked considerable controversy.

However, the establishment of a hacker firewall may have a greater significance not only to prevent another exchange from collapsing but also to protect those users who frequently suffer from hacker intrusions but receive little attention. After all, they are powerless to coordinate the entire network to stop hackers, and each attack has a greater impact on retail investors.

Although the Bybit incident ultimately did not evolve into a systemic collapse, the vulnerabilities exposed in cold wallet interactions, the liquidity bottlenecks of cross-chain bridges, and the temporary nature of industry mutual assistance mechanisms have sounded the alarm for the Ethereum ecosystem and the entire cryptocurrency industry—only by building an attack-resistant underlying architecture and institutionalized risk buffer mechanisms can crises be truly transformed into evolutionary momentum.

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