StakeHound Sues Fireblocks Over ETH 38K Staking Wound

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Fireblocks (a crypto custodian heavily backed by DeFi) has been accused of losing ETH 38.178 (USD 76m) by StakeHound, a major Ethereum (ETH staking pool. Fireblocks refutes this accusation.

StakeHound confirmed yesterday, June 22, that the Israeli High Court issued proceedings after “attempts at resolving this issue with Fireblocks had unfortunately not been successful”.

According to the staking pool, the custodian is accused of having lost 2 keys that make up their 3-of-4 threshold signature that allows them to withdraw the shards.

“Fireblocks (1) failed to generate their private keys within a production environment (2) didn’t include the private key required for decrypting their 2 key shares in backup (3) and (3) lost both keys,” the company stated.

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

According to Fireblocks, the custodians advised StakeHound that they store their backup wallet with a third party “disaster restoration service.” However, the pool did not do this. The custodian also claims that funds were not kept on its platform because Ethereum2.0 is still in development and Fireblocks can’t support it.

Calcalistech claims that another keeper of StakeHound’s keys was coincover. This was a crypto security specialist who was bound by a confidentiality agreement which prevented it from verifying if it could open its wallet. To allow the plaintiff to access their funds via a backup created by Coincover, it must first be compared to a copy kept by Fireblocks. StakeHound claims Fireblocks failed transfer the keys which caused “disaster and damage”.

According to Stakehound, “The defendant irrevocably lost all access to the plaintiff’s digital assets, which were deposited into an e-wallet provided him by the defendant, causing a loss of [ETH 38.178]”.

These claims were dismissed by Shaulov.

“What we did for them through our research group was to help develop an application that they could run to generate a password. They needed to back it up and give instructions. The CEO stated that they did not backup the password and didn’t confirm it.

According to the company, “No Fireblocks production key was ever compromised, all Fireblocks customers funds are safe, and all customer keys are backed-up and recoverable.”

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