Bybit Asks ParaSwap DAO to Refund $100K in Hacker Fees

• Bybit requested ParaSwap DAO to return $100K in fees from a hacker’s transactions.
• The move raises concerns over the implications for DeFi protocols.
• The debate questions whether refunding illicit funds sets a risky precedent.

A Controversial Request: Bybit vs. ParaSwap DAO

Bybit, a leading cryptocurrency exchange, recently requested ParaSwap DAO to refund $100,000 in fees collected from a hacker’s transactions. The incident has ignited a broader discussion about the responsibilities of decentralized protocols in handling illicit funds. Should DeFi platforms be responsible for returning funds linked to criminal activity, or does this undermine the trustless nature of the ecosystem?

ParaSwap, a decentralized exchange aggregator, operates in a permissionless manner, meaning it does not control who uses its services. The fees collected from transactions—including those involving hackers—are distributed within the DAO. Bybit’s request challenges the core principles of decentralization and raises concerns about whether DAOs should be obligated to reverse transactions or refund funds in such cases.

⚡️ NEW: Bybit requested ParaSwap DAO to return $100,000 in fees from hacker transactions, triggering a debate on whether refunding illicit funds sets a risky precedent for DeFi. pic.twitter.com/n0k19rnGjM

— Cointelegraph (@Cointelegraph) March 5, 2025

The Risks of Setting a Precedent

The key issue in this case is whether fulfilling Bybit’s request would set a risky precedent for DeFi. If DAOs start refunding funds from illicit transactions, it could introduce a slippery slope where:

1. Centralization Concerns – DeFi platforms could be pressured to comply with similar requests, weakening decentralization.
2. Legal and Compliance Risks – Governments may see DAOs as responsible for fraud-related transactions, potentially increasing regulatory scrutiny.
3. Moral Hazard – If hackers know funds can be traced and reclaimed, they may exploit such mechanisms to manipulate DeFi protocols.

While DeFi protocols must address security concerns, the community remains divided on whether ParaSwap DAO should honor Bybit’s request or uphold its decentralized principles.