Crypto’s On-Chain Security Blind Spot: Off-Chain Failures Drain Billions
Blockchain’s ironclad code can’t save you from human error—and the industry keeps paying the price.
The $10B loophole nobody’s fixing
While devs obsess over smart contract audits, exchange hacks and custody failures hemorrhage more value than any DeFi exploit. Guess which problem gets VC funding?
Security theater meets crypto bro math
Projects brag about ’unhackable’ chains while using Excel sheets for treasury management. The hedge funds love this one trick.
Wake-up call: Your private keys won’t save you from a CFO who clicks phishing links. But hey, at least the blockchain is immutable—your losses are forever.
Multisig is not enough
Code isn’t always the problem though. In some of the biggest crypto breaches, it’s the off-chain stuff that breaks first. Take Bybit, for example. The exchange lost nearly $1.5 billion due to a compromised multisig setup. Not because of a bug in the code, but because of what looks like poor operational security.
“Many crypto platforms neglect fundamental off-chain security principles, secure operational practices, and specific requirements outlined in the Cryptocurrency Security Standard, leaving themselves vulnerable to similar threats.”
Dmytro Yasmanovych, head of compliance at Hacken
Yasmanovych said the team recommends crypto firms urgently implement or strengthen several practical security controls in line with the CCSS. For instance, these include deploying multi-factor authentication using secure, hardware-backed methods — such as biometric solutions or physical tokens — across all critical off-chain operations to defend against credential-based attacks.
He also emphasized the need for clear transaction authorization policies, with documented roles, approval thresholds, and procedures to prevent unauthorized activity. In addition, Yasmanovych advised firms to define and enforce secure, encrypted communication channels for sensitive operations, including transaction requests and approvals.
Exit liquidity dressed as innovation
But perhaps the most controversial insight from Hacken was reserved for the LIBRA token, a politically hyped memecoin that ended in a textbook rug pull. According to the Hacken team, insiders might have walked away with over $300 million by selling into market hype.
The LIBRA token had claimed to introduce “concentrated liquidity,” but to Hacken’s CEO, that’s not what it was.
“For newcomers, it sounds like they were strengthening the market or adding value to the token, but in reality, it was just a sophisticated way to place large sell orders at specific price points. When the price spiked due to hype, those orders converted tokens into cash instantly letting insiders exit with massive profits. It’s not innovation, it’s exit liquidity. Never invest in anything like that. This kills trust in the space and turns the industry into a circus.”
Dyma Budorin
Hacken believes that crypto can — and should — borrow some ideas from traditional finance to avoid this kind of thing. In regulated markets, insiders must disclose major holdings and planned sales. Maybe crypto projects should start doing the same. Disclosure of tokenomics, vesting schedules, and team allocations should be the norm, not the exception.
And while full-on regulation is still a matter of debate, Hacken suggests the space at least needs oversight mechanisms. Think third-party monitoring platforms, public rating systems, or watchdogs that can flag strange token behavior or unusual liquidity events before it’s too late. Until then, trust will remain shaky. And every exit scam or stealth mint will only drag crypto further away from public legitimacy.
