StakeHound Sues Fireblocks Over ETH 38K Staking Wound

DeFi company and major Ethereum (ETH) staking pool StakeHound has accused Fireblocks, a heavily-backed crypto custodian, of losing ETH 38,178 (USD 76m), which Fireblocks denies.

StakeHound confirmed that after “attempts to resolve this issue with Fireblocks have unfortunately not been successful” “proceedings were issued out of the Israeli High Court” yesterday, June 22.

The staking pool alleges that the custodian has lost 2 keys that are part of their 3-of-4 threshold signature for the shards that form the withdrawal key.

“Fireblocks (1) did not generate their private keys in a production environment, (2) did not include the private keys required to decrypt their 2 key shares in the backup, and (3) lost both keys,” the company said, adding that “in the coming weeks, there will be a public statement that will describe the next steps for StakeHound.”

However, Michael Shaulov, CEO of Fireblocks, denies these claims, telling Israeli media outlet Calcalistech that StakeHound’s narrative is “detached from reality”.

Per Fireblocks, they have advised StakeHound to store the backup of their wallet with a third-party “disaster recovery service,” but the pool didn’t do it. Also, the custodian claims that the funds were kept outside of its platform, because Ethereum 2.0 hasn’t been launched yet and Fireblocks couldn’t support the framework created by the pool.

According to Calcalistech, another keeper of StakeHound’s keys was Coincover, a crypto security specialist, who was bound to a confidentiality agreement that kept it from confirming if it could open the wallet. In order for the plaintiff to access their funds through a backup made by Coincover, it must be verified by comparing it to a copy held by Fireblocks. StakeHound claims that Fireblocks failed to transfer the keys, which “resulted in a disaster and damage.”

“The defendant irrevocably lost access to the plaintiff’s digital assets, which were deposited in an e-wallet provided by the defendant, causing the loss of [ETH 38,178],” the report said, citing Stakehound.

Nevertheless, Shaulov dismissed these claims.

“What we did do for them through our research team was to help them develop an application they ran in order to generate a password, which they needed to back up and provide instructions for backing it up. They did not back up the password and did not confirm it,” the CEO said.

The company also claims that “No Fireblocks production keys were ever affected, and all Fireblocks customers’ funds are safe, and customer keys are backed up and recoverable.”
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