Hyperliquid (HYPE) Threatened By North Korean Hackers: What Investors Need To Know

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As a seasoned researcher with over two decades of experience in the tech and finance industries, I’ve seen my fair share of security breaches and regulatory challenges. The situation surrounding Hyperliquid (HYPE) is particularly alarming due to its connection with North Korean hacker groups and potential violations of US regulations.

On the radar of concern is Hyperliqid (HYPE), a self-run, Layer 1 blockchain-based perpetual exchange (DEX). Recently, it has been dealing with substantial security issues following unusual trading patterns that hint at involvement from North Korean hacker collectives. Accounts suspected to belong to these cybercriminals have been actively trading on Hyperliqid, leading to a total loss exceeding $700,000. This alarming trend was initially brought to light by @tayvano_, a renowned crypto threat analyst recognized for his proficiency in pinpointing risks associated with North Korean cyber operations.

As a researcher examining these transactions, it appears they could serve as security tests for Hyperliquid rather than simple financial activity, based on my observations and @tayvano_’s analysis. In a recent post on X, @tayvano_ expressed his concerns about the situation, stating that if he were responsible for managing Hyperliquid’s validators or their binaries on GitHub, he would be quite anxious due to these transactions. However, the Hyperliquid team seems unfazed by these activities, suggesting they are confident in their security measures. @tayvano_ concluded his analysis by stating that North Korea does not trade but instead tests systems, which could be what is happening here.

Emphasizing the seriousness of the matter, @tayvano_ reiterated the importance of Hyperliquid taking prompt action to bolster its defenses. “My proposal from two weeks ago remains valid for Hyperliquid,” he said. “I’m open to working with you either asynchronously or over a call. I could even send one of my friendly colleagues if you prefer someone else. However, if action is not taken immediately, there will be significant consequences for many people.” This was his warning.

Hyperliquid Faces Some Serious Risks

Prithvir Jhaveri, the founder and CEO of Loch, shared his evaluation of the difficulties that Hyperliquid is encountering through X. In this assessment, Jhaveri emphasized potential operational security risks, specifically pointing out vulnerabilities resulting from the platform’s heavy dependence on a limited number of validators.

According to Jhaveri’s report, it appears that wallet addresses linked to the North Korean hacker group Lazarus are experimenting with Hyperliquid. This group is known for testing with real funds before launching an attack. Their favored tactic is phishing, and at this time, there are only four validators for HL, all of which run identical code.

Apart from detailing the key points of his presentation, he additionally explored the regulatory hurdles that Hyperliquid might encounter. He touched upon two main issues: firstly, the possibility of breaching US Office of Foreign Assets Control (OFAC) sanctions due to interactions with entities from countries under sanction; secondly, potential violations of Securities and Exchange Commission (SEC) rules because Hyperliquid operates without registration as a broker.

He explained that the entity in question is running a financial software which has been used by a nation under OFAC sanctions (DPRK). While they might assert that their software is open-source and non-custodial, we’ll need to observe the situation closely. Transitioning from 4 validators to 16 could potentially strengthen their argument regarding OFAC risks.

Regarding potential SEC issues, he noted: “HL could face charges for functioning as an unregistered broker. On a positive note, the upcoming SEC and Congress may be favorable towards cryptocurrency and liberty. However, a challenge arises since the advocates for this crypto legislation are rivals to HL. It’s important to mention that HL has not received any venture capital funding. They find themselves in a battle against substantial financial backing motivated to safeguard the interests of existing cryptocurrency exchanges (Coinbase and Kraken) and blockchains (Ethereum and Solana).

Jhaveri expressed a worry about the high volume of market-making activities being conducted by Hyperliquid’s internal liquidity provider (HLP). He highlighted potential risks linked to a centralized liquidity model, stating that a major vulnerability or exploit could result in significant financial losses for customers. In simpler terms, he cautioned that if there is a bug or security breach, customer funds might be rapidly depleted.

To put it simply, Jhaveri highlighted Hyperliquid’s strategic stance amidst obstacles. He expressed that the Hyperliquid team has developed an exceptional product, offering unmatched user experience for perps trading. However, they also face significant risks. If these challenges can be addressed, success (Valhalla) may not be too distant. Yet, he finds it challenging to see the potential benefits worth investing at this moment, given the current level of risk.

At press time, HYPE traded at $28.

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2024-12-24 02:11