THORChain, the prominent decentralized finance (DeFi) protocol, has been facing intense scrutiny in recent weeks, following allegations that it facilitated money laundering activities. The controversy centers around the protocol’s alleged use by North Korean state-backed hackers, known as the Lazarus Group, to convert stolen Ether (ETH) into Bitcoin (BTC). This situation has ignited debates about the responsibilities of decentralized platforms when confronted with illicit activities.
In a widely publicized exploit targeting the cryptocurrency exchange Bybit, the Lazarus Group reportedly absconded with approximately $1.4 billion in Ether. Subsequent investigations revealed that the hackers utilized THORChain as their primary conduit to swap the stolen ETH for BTC, completing the conversion within a mere ten days. This rapid and sizable transaction volume has positioned THORChain at the center of a thick controversy that has questioned the level of control a decentralized exchange can exert over user accounts and funds in their protocol.
Debate Over THORChain’s Role
Following reports that North Korean hackers funneled stolen Bybit funds through multiple DeFi protocols, THORChain has emerged as the primary focus of scrutiny—primarily due to the overwhelming volume of funds that flowed through its liquidity pools. According to Bybit CEO Ben Zhou, nearly 72% of the hacked assets, equivalent to 361,255 ETH, were processed via THORChain, dwarfing activity across other platforms like Uniswap and OKX DEX.
Critics have rushed to label THORChain as a laundering hub, but several experts argue that such claims oversimplify the protocol’s actual role. Unlike crypto mixers, which are designed explicitly to obfuscate transaction trails, THORChain operates as a decentralized swap protocol, where each transaction remains verifiable on-chain.
Federico Paesano, investigations lead at Crystal Intelligence, addressed this misconception in a recent LinkedIn post. He explained that no concealment actually occurred during the hack aftermath; instead, the hackers used THORChain and other providers to convert assets from one blockchain to another.
“Unpopular opinion: No, the Bybit hackers have not completed laundering the stolen funds.” Paesano wrote.
“I’ve seen this claim circulating a lot lately—often paired with the idea that after a certain stage, most of the funds become untraceable. But that couldn’t be further from the truth.”
The difference is crucial. While mixers intentionally hide the source and destination of funds, protocols like THORChain are structured to facilitate swaps in a transparent manner, leaving a clear trail that investigators can follow.
A Broader Question: Where Does Responsibility Lie?
Still, the overwhelming use of THORChain by the high-profile hackers has ignited a bigger conversation within the DeFi community. Even if transactions are traceable, does a decentralized platform bear any responsibility when it becomes the preferred channel for illicit fund conversions?
This ethical dilemma has fractured opinions within THORChain’s own governance ranks, culminating in attempts by some validators to pause trading activities—a decision that was quickly overturned, leading to the resignation of key developers, including Pluto, one of the protocol’s key figures.
While THORChain prides itself on being a fully decentralized protocol, critics pointed out that the platform had previously exercised interventionist measures. Notably, it had once paused its lending feature due to insolvency risks—raising the question of why similar action wasn’t upheld this time to block illicit flows.
Several community members questioned whether THORChain only intervenes when the protocol’s own interests are at risk, leaving external threats like money laundering unchecked. Blockchain investigator ZachXBT added fuel to the debate, calling out Asgardex, a THORChain-based decentralized exchange, for failing to return fees collected from hacker transactions, contrasting it with other protocols that have reportedly refunded illicitly obtained gains.
THORChain Founder Defends Protocol’s Position
In response, THORChain founder John-Paul Thorbjornsen defended the platform’s decentralized nature and criticized what he described as double standards. He pointed out that many centralized exchanges process millions in questionable transactions without proactive intervention—often only returning funds when compelled by authorities.
Thorbjornsen argued that expecting DeFi protocols like THORChain to police all transactions conflicts with their core decentralized ethos. However, this defense has done little to quell concerns over whether THORChain’s governance can effectively balance decentralization with necessary intervention during crises.
Quick Facts:
- North Korean hackers allegedly exploited Bybit, stealing $1.4 billion in Ether, and used THORChain to convert the funds into Bitcoin.
- Attempts by some validators to halt ETH trading on THORChain were quickly overturned, revealing governance inconsistencies.
- The platform’s association with illicit activities may attract regulatory scrutiny, similar to actions taken against other crypto platforms.
- The incident has sparked discussions about the responsibilities of decentralized platforms in preventing misuse by bad actors.
