Sui token dips as community questions decentralization over frozen funds

The decentralization of the Layer-1 blockchain Sui network is being questioned after its major DeFi platform, Cetus Protocol, called for an upgrade to recover stolen funds. Cetus had been hacked for over $222 million, but Sui Validators were able to freeze $162 million of the stolen funds.

According to Sui Network , the validators could freeze the funds by ignoring transactions from the two addresses tied to the attack, effectively preventing the attacker from bridging out all the stolen funds.

However, Cetus protocol has requested a network upgrade to regain the frozen funds. The decentralized exchange and liquidity provider called for a community vote to decide on the upgrade.

The Sui Network team described the request as extraordinary, noting that Cetus desperately needs funds. Thus, it has agreed to let the vote happen on the condition that the Sui Foundation abstain from voting to remain neutral and that Cetus must publicly commit to returning all lost funds to users.

Meanwhile, the Cetus team noted that it needs the recovered funds to repay users who lost assets to the hack while efforts to recover the remaining $60 million are ongoing. However, it acknowledged that it would respect the decision of the community.

It wrote:

“No one can make this decision unilaterally. We propose an on-chain vote involving the network’s major participants, including validators and SUI stakers, to decide. We want to recover and return the stolen funds, but we will respect whatever the community decides.”

However, the upgrade’s scope is unclear. Sui Network had said it would not roll back the chain history or reverse transactions. It added that the design details and code for the vote will soon be shared.

Sui community reacts to a planned network upgrade

So far, most of the reactions to the possible upgrade have been negative, with many users concerned such an upgrade could make the network lose trust as a decentralized protocol. Others added that rolling back or upgrading the network to recover the loss would be wrong.

They claimed that Cetus was well aware of the flaws in its smart contracts since last year, when they were exploited at a smaller scale with memecoins but failed to act. Thus, the protocol should cover the losses itself.

Meanwhile, some users think the voting itself might be a charade. They noted that only 3.2% of SUI supply went to the public while half went to venture capital firms and insiders who have been staking all their tokens. Thus, they believe that these VC firms will determine the outcome of the vote, and individual stakers will not influence the final decision.

Interestingly, some users have criticized validators’ efforts to freeze funds, saying it amounts to censorship and defeats true decentralization. However, the team clarified that any validator on any network can decide to ignore transactions, and if enough of them do it, the transaction fails.

Despite the overwhelming opposition, several people still believe it is the best decision as it will ensure that Cetus users get their funds back. One user even recommended that founders and stakeholders with liquidity pools on Cetus decide, since they have a stake in the outcome.

SUI is down 5% in 24 hours

While debates continue over whether Sui should have the network upgrade, the network native token SUI is down 6.57% to $3.63 in the last 24 hours. Its decline is due to broader market struggles with price corrections after BTC set a new peak price of around $112,000.

However, the Cetus hack also contributed to the SUI drop, with the token dropping more than 13% from $4.19 to $3.62 the day after the incident.

The CETUS token is not doing any better. Due to the incident, it is down 5% today and more than 17% in the past week. It is trading at $0.1640 at press time.

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