A core developer of the Solana-based decentralized exchange Cypher Protocol has confessed to stealing over $300,000 worth of user funds that were meant to reimburse those who were impacted by a prior hack on the platform.

The developer, who goes by the pseudonym “Hoak” admitted in a public statement on Tuesday that he stole the funds over a span of multiple months and gambled them away due to a “crippling gambling addiction.”

The revelation is a devastating blow to the Cypher Protocol, which had been working to relaunch and recover from a $1 million cryptocurrency theft that took place in August 2023.

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The team had managed to freeze around $600,000 of the stolen assets and set up a redemption contract for users to retrieve their lost funds.

However, another core contributor named “Barrett” discovered and revealed on Monday that Hoak had been systematically draining the reimbursement wallet through 36 separate unauthorized withdrawals.

Hoaks Admits His Guilt in a Lengthy Statement Published on X

In his statement titled “My statement on the situation” posted on the social media platform X (formerly known as Twitter), Hoak wrote: “To address the elephant in the room, the allegations are true, I took the funds and gambled them away. I didn’t run away with it, nor did anyone else.”

He expressed remorse for his actions, stating: “I know likely nothing I say or do will make things better – perhaps other than rotting in jail.” Hoak blamed his behavior on psychological issues that had gone unchecked, particularly a severe gambling addiction.

“This is the culmination of what snowballed into a crippling gambling addiction and probably multiple other psychological factors that went by unchecked for too long,” he admitted.

Blockchain data compiled by another project contributor named Barrett shows that Hoak’s wallet amassed over $184,077 worth of various cryptocurrencies like Ethereum, Wrapped Solana, and a handful of stablecoins before the funds were transferred in batches to the crypto exchange Binance, likely to be cashed out.

In total, nearly $315,000 was sent from the Cypher redemption contract address to the wallet associated with Hoak.

“This is incredibly saddening to me,” Barret wrote in an X post. “I never thought this would be a possibility, having a core contributor who stayed on after the [Mango] exploit to try and rebuild the project be the one who rugged funds from the redemption contract.”

It appears that the theft went unnoticed by the Cypher team until a user who was unable to withdraw funds from the wallet eventually informed the team. Hoak indicated at the time that he would “take care of the issue” but that never happened.

Barrett indicated that he has contacted law enforcement and provided details about the theft.

The incident also caught the attention of the well-known blockchain investigator “ZachXBT” who claimed to have previously collaborated with Cypher and obtained Hoak’s personal information during an investigation into the August 2023 hack. ZachXBT stated he would share this information with authorities as needed.

Hoak’s Gambling Addiction is a Typical Facet of Crypto Traders, UK Study Shows

Beyond the immediate impact on the reputation of the Cypher Protocol, Hoak’s admission has reignited a broader discussion around gambling addiction and the casino-like aspects of cryptocurrency trading that typically entice individuals who fight this type of mental health issue.

The revelation comes after a 2023 survey in the United Kingdom found that individuals struggling with problem gambling were nearly five times more likely to own cryptocurrencies compared to the general population.

Hoak’s case exemplifies how the pseudonymous nature of blockchain projects can enable bad actors to misappropriate funds while avoiding immediate accountability. However, the transparency of blockchain ledgers ultimately allowed the Cypher team to trace the theft and identify the person who was responsible for it.

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The saga can be considered another setback for the Solana ecosystem, which has grappled with a series of hacks, outages, and related controversies over the past year. As a key project gunning to relaunch on Solana, Cypher’s ability to recover and regain the trust of users now faces substantial new challenges.

Hoak has stated he intends to face the legal consequences resulting from his theft. Because Hoak’s apology directly admits that he embezzled the funds, he is likely to face significant jail time.

“I currently have no energy left whatsoever and considering no one is going to want anything to do with me after all this, I believe there’s no way forward, and it’s actually over for me”, Hoak commented.

He concluded his statement by saying: “It’s time to face the music and reset my life.”

The path forward for the Cypher Protocol remains highly uncertain given the loss of funds that were deemed critical to its relaunch efforts.

Robust security audits, better checks and balances, and lifting the veil on the prevailing anonymity of crypto founders have been proposed as preventative measures to avoid incidents like this.