THORChain's North Korea Dilemma: Developer Exits, Volumes Surge Amidst Lazarus Group Transactions

THORChain, a cross-chain swap protocol, has been in the spotlight recently due to a contentious decision regarding North Korean transactions. A core developer, known only as "Pluto," has announced their departure from the project following a failed attempt to halt transactions linked to the Lazarus Group, a North Korean hacker collective.

Pluto's exit comes after a vote by THORChain validators to stop Ether (ETH) trading on the protocol, aiming to cut off the Lazarus Group's access to the network. However, this decision was swiftly reversed, with only three validators supporting the move. TCB, another validator, threatened to leave the project if a solution to stop North Korean transactions was not rapidly adopted.

The Lazarus Group has been using THORChain to move a significant portion of the $1.5 billion worth of crypto stolen from the crypto exchange Bybit on Feb. 21. According to data from Lookonchain, the group has sent $605 million worth of ETH through THORChain.

THORChain's volumes have surged in recent days, with the protocol processing nearly $860 million in swaps on Feb. 26, its highest-ever daily volume. The increased volumes continued into Feb. 27, finishing the day at around $705 million.

The FBI has urged crypto validators and exchanges to cut off the Lazarus Group and confirmed earlier reports that North Korea was behind the record Bybit hack. THORChain founder John-Paul Thorbjornsen told Cointelegraph that none of the sanctioned wallet addresses listed by the FBI and the US Treasury's Office of Foreign Assets Control has ever interacted with the protocol. He argued that the actor is moving funds faster than any screening service can catch, making it unrealistic to expect these blockchains to censor transactions, including THORChain.

TCB, in a series of X posts, argued that THORChain is not decentralized enough to survive a regulatory attack, as it lacks a larger validator base like Bitcoin. They also noted that certain design choices made it complicated to onboard new validators, resulting in a small number of actors running the network and providing user flows. TCB expressed concern that corporate actors, who already censor transactions on their front ends, may leave the project if THORChain continues to allow North Korean transactions.