Mutual assistance in the crypto ecosystem: How Bybit can avoid an FTX-style crash

Article author: Yueqi Yang Article compilation：Block unicorn

Last week, hackers stole $1.4 billion from Bybit, the world's third-largest cryptocurrency exchange. Subsequently, other cryptocurrency exchanges as competitorshave stepped in to help Bybit stabilize its financial situation. The cryptocurrency industry hopes that this move will ease investors' concerns that the hacker attack may lead to a repeat of the FTX-like collapse.

Several exchanges, including Bitget and MEXC, have provided emergency loans to Bybit to replenish the tokens lost in the hack and ensure that Bybit's customers can withdraw their funds smoothly. These loans are unusual because they are arranged quickly and easily, without a lengthy due diligence process and with few strings attached. In contrast, before and after the collapse of FTX in 2022, its founder Sam Bankman-Fried sought funds widely in the cryptocurrency industry and Wall Street to fill the gap and opened his books to potential investors.

About five hours after the hack on Friday, smaller rival Bitget lent Bybit 40,000 Ethereum, worth more than $105 million, according to Bitget CEO Gracy Chen. The terms of the loan were unusually borrower-friendly, as it charged no interest, did not require Bybit to post any collateral, and did not set a repayment deadline. “It was more based on pure trust,” Chen said.

Another rival cryptocurrency exchange, MEXC, also provided a loan. The loans enabled Bybit to allow customers to withdraw funds despite a $1.4 billion funding gap caused by the hack, easing a potential crisis for Bybit that could have spread to the broader cryptocurrency market. However, the emergency loans also deepened the financial ties between Bybit, Bitget, and MEXC, which could have a ripple effect among the companies if problems arise again.

Still, cryptocurrency industry participants see emergency loans as a necessary move to build investor trust in the entire cryptocurrency ecosystem.

In an interview, Chen said that immediately after the hack, Bitget board members contacted Bybit CEO Ben Zhou to arrange a bridge loan. Chen said Bitget assessed Bybit’s risk exposure and believed the exchange had the ability to repay the loan, estimating that the funds stolen from Bybit were equivalent to its profit for a year.

Chen said of Bybit: “We are familiar with each other and have common investors. We hope to jointly promote the development of the industry and fight against a common enemy - hackers, rather than competing with each other.” Chen also said that Bitget will not receive any equity in Bybit as a result of the loan.

Some big customers have also pledged to support Bybit by maintaining or increasing their trading positions. For example, Suji Yan, founder of the cryptocurrency project Mask Network, said that although he and the team withdrew some funds immediately after the hack, he deposited about 3,000 Ethereum from his personal account and Mask Network account to Bybit on Saturday after talking with Bybit executives.

A representative of Binance, the world's largest cryptocurrency exchange, said that Binance has been in contact with Bybit since the hack and provided technical support on cybersecurity. In an interview with Chinese cryptocurrency blogger Colin Wu, Bybit's CEO said the company did not borrow from Binance because it had already borrowed enough funds from other companies.

The Bybit hack likely originated from North Korea’s state-affiliated hacking group, according to cybersecurity researchers. The incident highlights the risks facing global investors even as the new Trump administration relaxes cryptocurrency regulations. Bitcoin and Ethereum prices have fallen more than 5% since Bybit disclosed the hack, and Coinbase shares fell 8% on Friday.

On Sunday evening, Bybit’s Zhou said the exchange had replenished the stolen Ethereum and had enough cryptocurrency to fully cover all customer accounts. He thanked Bitget, MEXC and other companies including Galaxy Digital and Antalpha Global, a Singaporean lender associated with bitcoin mining giant Bitmain.

Zhou did not specify what kind of support Bybit received from each

Bybit’s total assets had fallen to $11.8 billion as of Monday, according to data from DefiLlama, and traders had withdrawn about $6 billion. A report from cryptocurrency analytics firm Kaiko showed that the exchange’s liquidity had declined. Still, Bybit has so far managed the crisis successfully and has not shut down customer withdrawals.

Deepening Ties

Dubai-based Bybit, as well as Bitget and MEXC, are offshore exchanges that are technically off-limits to U.S. users and offer highly leveraged perpetual futures contracts that are attractive to cryptocurrency users but illegal in the U.S. All three exchanges are growing rapidly, thanks in part to the FTX debacle, which provided an opportunity for other offshore exchanges to grab market share.

Both Bybit and Bitget count cryptocurrency venture capital firm Dragonfly Capital as minority shareholders. “Everyone knows that stopping North Korea’s actions and enabling users to trust decentralized infrastructure is better for the entire industry,” Haseeb Qureshi, managing partner of Dragonfly, said in an email. “An attack on one is an attack on all, and we are stronger together.”

MEXC has never disclosed the name of its current CEO or controlling shareholder. But according to a person familiar with the matter, the shareholder also holds shares in Bitget. MEXC also announced a strategic partnership with Bybit in 2021, aiming to “work closely” to serve users and jointly create a blockchain ecosystem. Asked when Bybit would repay the loan, Bitget’s Chen said: “My expectation is that they will repay us once any short-term liquidity crisis is resolved, so probably within a few days.”