Protect and serve? The dilemma of reissuing lost or frozen DeFi tokens

Are projects able to pause smart contracts or freeze tokens if they are truly decentralized?

Choosing a strategy to save users' funds in a force-majeure situation can be a real dilemma for a project whose tokens are traded on crypto exchanges.

In an attempt to stop the KuCoin hackers from cashing out stolen assets, blockchain projects pushed measures to lock the affected tokens with a share of total supply varying from 10% to 40%. Velo, Orion, Noia and about 30 other projects in total restored access to transactions by implementing a token swap, according to KuCoin data.

These were not token swaps in the usual sense of the term, as the projects replaced user tokens with new ones.

In an attempt to save 38 million tokens affected by the incident, the project team decided to reissue ORN tokens one-to-one via a token swap the same day that the hack was announced.

KardiaChain, another DeFi project affected by the KuCoin security breach, with a total amount of $10 million worth of KAI missing, also took the action of making the previous contract address obsolete and underwent a token swap to eliminate any risk of the stolen KAI tokens ever being sold on the secondary market.

The share of stolen tokens for some projects reached 40% of the total supply, which means that an attacker could cause even more damage by manipulating the price of the coins.

Ocean Protocol's OCEAN lost 8%, according to CoinGecko, when the hackers sold the stolen tokens in batches of 10,000 coins.

It may seem that a token swap can happen because projects control ERC-20 tokens on the Ethereum network.

The projects cannot control the network's validators, so the projects need a voting session to revert the malicious attacks - that is how decentralization and blockchain work.