THORSwap DEX Proves in One Move that DeFi is Not Decentralized
THORSwap suspends platform following FTX hack tied to trades
Key Takeaways
- THORSwap, initiated “maintenance mode” to prevent potential illicit fund transfers within its network.
- This decision raises questions about the balance between decentralization and security in DeFi.
- THORSwap’s move highlights the centralization paradox in decentralized economies.
THORSwap, a decentralized exchange (DEX) that operates on the multichain THORChain infrastructure, has initiated a maintenance mode in order to impede the transfer of illicit cash by malicious entities on the network.
On October 6th, THORSwap implemented a state of “maintenance mode” as an urgent response to mitigate the potential transfer of illicit cash. The decision was made subsequent to consultations with advisors, legal counsel, and law enforcement, as indicated in the initial notification .
However, many supporters of DeFi and decentralized crypto services will note the level of control and censorship this took.
THORSwap did not immediately respond to a request for comment.
Although the decision to temporarily suspend the platform was met with disapproval from the majority of the community, it was made with the intention of ensuring the long-term satisfaction of the DEX’s clients. The corporation did not provide any additional details regarding the ongoing investigations and measures for remediation.
This action was taken after the alleged FTX hacker transferred 22,500 ETH ($38 million) this week, including ether for Bitcoin via ThorChain. The FTX hacker has approximately 163,000 ETH ($275 million) in Ether spread across multiple wallets and is renowned for suspicious withdrawals from the defunct crypto exchange FTX.
Are Smart Contracts the Solution?
The vulnerabilities of smart contracts remain a prominent avenue via which malicious individuals exploit the DeFi market to misappropriate cash.
In contemporary practice, it has become practically obligatory for these projects to use the services of a third-party auditing firm to execute smart contracts, therefore significantly enhancing their security.
Furthermore, the emergence of crypto insurance has become increasingly prominent since it safeguards investors in the event of a theft. The DeFi market is currently facing a pressing need for enhanced protection measures, owing to the increasing number of attackers targeting new participants in this widely sought-after domain.
According to THORSwap , the contemporary “decentralized” economy presents a notable paradox wherein centralized exchanges predominantly facilitate cross-chain asset trades.
In order to establish an economic system immune to censorship, the implementation of decentralized exchanges (DEXs) is needed.
Numerous decentralized exchanges, such as Uniswap, primarily facilitate trading for a limited number of assets inherent to a singular blockchain. An example of a DEX is SushiSwap, which functions on the Ethereum blockchain and exclusively facilitates transactions involving ERC-20 tokens.
While single-chain DEXs offer utility, their capacity to facilitate the exchange of local assets between different blockchain networks hinders the expansion of decentralized economies.
Regulatory Landscape and Future Outlook
According to a statement made by the US Treasury Department in April, DeFi services that do not adhere to anti-money laundering and countering the financing of terrorism (AML/CFT) rules provide a substantial risk of facilitating illicit finance. This is due to the simplicity with which criminals can exploit these services.
As per the research from the government agency, DeFi services are required to adhere to anti-money laundering and countering the financing of terrorism regulations, irrespective of their assertion of being “fully decentralized,” as they are still classified as financial institutions under the Bank Secrecy Act (BSA).
The regulatory framework around decentralized exchanges is currently developing and remains mostly ambiguous. DEXs provide distinct regulatory problems due to their operational structure, which lacks a central authority.
Applying traditional regulatory frameworks to DEXs is typically challenging due to the absence of a centralized body that can be held responsible.
The absence of a centralized authority poses challenges for regulatory entities in effectively implementing conventional compliance protocols, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) verifications.
Nevertheless, the increasing popularity of DEXs and the potential hazards they provide to users and the broader financial system have prompted regulators to intensify their investigation.
