Author: Yueqi Yang Article Translated by: Block unicorn

Last week, hackers stole $140 million from Bybit, the world's third-largest cryptocurrency exchange. Subsequently, other cryptocurrency exchanges, as Bybit's competitors, stepped in to help stabilize Bybit's financial position. The cryptocurrency industry hopes that this move will alleviate investors' concerns that a collapse similar to FTX could occur.

Several exchanges, including Bitget and MEXC, have provided emergency loans to Bybit to replenish the tokens lost in the hacker attack, ensuring that Bybit's customers can withdraw their funds smoothly. These loans are unusual because they were arranged quickly and simply, without a lengthy due diligence process, and with almost no additional conditions. In contrast, before and after the 2022 FTX collapse, its founder Sam Bankman-Fried had sought funding extensively in the cryptocurrency industry and on Wall Street to plug the holes, and had opened the books to potential investors.

According to Bitget CEO Gracy Chen, about five hours after the hacker attack on Friday, the smaller competitor Bitget lent 40,000 Ether, worth over $105 million, to Bybit. The terms of this loan are exceptionally favorable to the borrower, as it does not charge interest, does not require Bybit to provide any collateral, and has no repayment deadline. Chen said, "This is more based on pure trust."

Another cryptocurrency exchange competitor, MEXC, also provided a loan. Although the hack caused a $140 million funding gap, these loans have enabled Bybit to allow customers to withdraw funds, mitigating the crisis Bybit could have faced, which could have rippled through the broader cryptocurrency market. However, the emergency loans have also deepened the financial ties between Bybit, Bitget, and MEXC, and if problems arise again, it could trigger a chain reaction among these companies.

However, participants in the cryptocurrency industry believe that emergency loans are a necessary measure to build investor confidence in the entire cryptocurrency ecosystem.

In an interview, Chen said that after the hacker attack, Bitget's board members immediately contacted Bybit CEO Ben Zhou and arranged 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 one-year profit.

Chen said of Bybit, "We are very familiar with each other and have common investors. We hope to work together to drive the industry forward and fight the common enemy - hackers, rather than compete with each other." Chen also said that Bitget will not acquire any equity in Bybit due to this loan.

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

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

Cybersecurity researchers believe that Bybit's hacker attack is likely to have originated from a North Korean state-affiliated hacker group. This incident highlights the risks faced by global investors, despite the Trump administration's relaxation of cryptocurrency regulations. Since Bybit disclosed the hacker attack, the prices of Bitcoin and Ether have fallen by more than 5%, and Coinbase's stock price fell 8% on Friday.

On Sunday evening, Bybit's Zhou said the exchange had replenished the stolen Ether and had enough cryptocurrency to fully cover all customer accounts. He thanked Bitget, MEXC, and other companies, including Galaxy Digital and the Singapore lending institution Antalpha Global, which is affiliated with the Bitcoin mining giant Bitmain.

Zhou did not specify what support Bybit received from each company. A representative of Galaxy Digital did not immediately respond to a request for comment. Antalpha could also not be reached for immediate comment.

According to data from defillama, as of Monday, Bybit's total assets had dropped to $11.8 billion, with traders withdrawing about $6 billion. A report by cryptocurrency analytics firm Kaiko shows that the exchange's liquidity has declined. Nevertheless, Bybit has so far successfully weathered the crisis without shutting down customer withdrawal functions.

Deepening Connections

Bybit, headquartered in Dubai, as well as Bitget and MEXC, are offshore exchanges that are technically prohibited from serving US users. They offer high-leverage perpetual futures contracts, which are attractive to cryptocurrency users but illegal in the US. These three exchanges have been growing rapidly, partly due to the collapse of FTX, which has provided an opportunity for other offshore exchanges to gain market share.

Both Bybit and Bitget list the cryptocurrency venture capital firm Dragonfly Capital as a minority shareholder. Dragonfly's managing partner Haseeb Qureshi said in an email, "Everyone knows that stopping North Korea's actions and allowing users to trust decentralized infrastructure is better for the whole industry. ... An attack on one is an attack on all, and we'll be stronger united."

MEXC has never disclosed the names of its current CEO or controlling shareholders. However, a person familiar with the matter said that the shareholder also holds a stake in Bitget. MEXC also announced a strategic partnership with Bybit in 2021, aiming to "work closely" to serve users and co-create the blockchain ecosystem.

When asked when Bybit would repay the loans, Bitget's Chen said, "My expectation is that once any short-term liquidity crisis is resolved, they will repay us, so probably within a few days."