In what has become the largest cryptocurrency theft in history, hackers infiltrated Bybit’s Ethereum cold wallet on February 21, 2025, siphoning approximately 401,346 ETH valued at $1.46 billion.
The breach, attributed to North Korea’s Lazarus Group, exploited vulnerabilities in Bybit’s multisignature wallet interface, redirecting funds through a sophisticated smart contract manipulation.
While Bybit assured users that client assets remained secure and operations uninterrupted, the incident has reignited debates about blockchain immutability, regulatory oversight, and the evolving tactics of state-sponsored cybercriminals.
Compromising the Multisig Protocol
The attack targeted Bybit’s Ethereum cold wallet during a routine transfer to a warm walleta standard operational procedure for liquidity management.
Hackers manipulated the transaction’s signing interface, overlaying a legitimate destination address with malicious smart contract logic.
This technique, known as a “masked payload attack,” deceived authorized signers into approving transfers that redirected funds to wallets controlled by the Lazarus Group.
Unlike conventional private key thefts, this method exploited human-computer interaction flaws rather than cryptographic weaknesses, underscoring the vulnerabilities inherent in multisig governance models.
Laundering Through Decentralized Infrastructure
Within hours, the stolen ETH was fragmented into 48 wallets, with 10,000 ETH routed to crypto mixer eXch to obscure transaction trails.
Blockchain analytics firm SlowMist reported subsequent conversions into privacy-centric coins like Monero (XMR) and cross-chain transfers to Bitcoin via bridges.
This rapid obfuscation highlights the challenges of tracking funds in a decentralized ecosystem: unlike the 2016 DAO hack, where stolen ETH remained static for weeks, modern DeFi composability enables near-instantaneous asset mobility.
Ethereum Foundation developer Tim Beiko dismissed calls for a blockchain rollback, contrasting the Bybit incident with two historical exceptions:
- 2010 Bitcoin Overflow Bug: A protocol-level violation allowed the creation of 184 billion BTC, resolved via consensus rollback when the network was nascent.
- 2016 DAO Hack: A 30-day fund freeze enabled Ethereum’s controversial hard fork, splitting the chain into ETH and Ethereum Classic (ETC).
In the Bybit case, transactions adhered to Ethereum’s protocol rules, leaving no technical basis for intervention.
Additionally, the interconnectedness of DeFi protocols—where ETH collateralizes loans, stablecoins, and derivatives renders selective rollbacks impractical.
Reversing transactions would invalidate legitimate trades across lending platforms like Aave and decentralized exchanges like Uniswap, causing systemic instability.
BitMEX co-founder Arthur Hayes controversially advocated for a rollback, stating, “We already voted no on immutability in 2016… why not do it again?”.
However, Ethereum developers and exchanges overwhelmingly rejected this proposal. Gautham Santhosh of Polynomial.fi emphasized that modern Ethereum’s complexity makes DAO-style rescues impossible: “A rollback would break bridges, stablecoins, L2s, and RWAs”.
The community’s resistance underscores a maturation in blockchain philosophy—prioritizing decentralization over centralized crisis management.
Lazarus Group’s Expanding Footprint
Blockchain investigator ZachXBT linked the attack to the Lazarus Group through transaction pattern analysis and test wallet linkages.
Arkham Intelligence confirmed these findings, awarding ZachXBT a $50,000 bounty for identifying the exploit’s origin.
With this theft, North Korea’s crypto reserves now exceed $3 billion annually, financing an estimated 40% of its ballistic missile program.
The Bybit breach follows Lazarus’ 2022 theft of $625 million from Axie Infinity’s Ronin Bridge, demonstrating improved technical sophistication and operational scale.
eXch, the mixer used to launder stolen ETH, has a documented history of collaborating with state-sponsored actors.
SlowMist revealed that eXch administrators ignored Bybit’s requests to freeze tainted funds, instead accelerating Monero conversions to thwart tracing.
This complicity highlights the regulatory vacuum surrounding decentralized mixers, which exploit jurisdictional arbitrage to service illicit actors.
Despite losing 7.3% of its $20 billion reserves, Bybit CEO Ben Zhou affirmed solvency, citing 1:1 client asset backing and bridge loans from partners like Binance and Bitget.
Binance and Bitget transferred 50,000 ETH to Bybit’s cold wallets, with Bitget pledging 25% of its reserves a move interpreted as both solidarity and preemptive risk mitigation against industry-wide contagion.
Tether further stabilized markets by freezing $181,000 USDT linked to Lazarus-controlled addresses.
Ethereum’s Price Volatility
ETH plunged 4% to $2,412 post-hack but rebounded to $2,770 within 48 hours amid institutional buying. This resilience contrasts with the 2014 Mt. Gox breach, where Bitcoin fell 50%, suggesting improved market depth and investor differentiation between protocol and custodial risks.
The hack intensified scrutiny on Bybit’s regulatory standing. In India, the Financial Intelligence Unit (FIU) had previously penalized Bybit for AML violations, while French regulators recently delisted it from a blacklist after two years of oversight.
Post-incident, the U.S. Treasury Department signaled plans to classify mixers like eXch as “primary money laundering concerns,” invoking Section 311 of the Patriot Act.
Bybit announced a migration from Safe’s smart wallets which temporarily froze $3 billion in USDT during the crisis to hybrid MPC (Multi-Party Computation) solutions combining hardware security modules with on-chain governance.
This shift reflects broader industry trends toward institutional-grade custody, as seen in Coinbase’s 2024 partnership with Anchorage Digital.
