In a shocking revelation , a pseudonymous contributor to the Solana-based exchange Cypher, known as Hoak, has confessed to taking and gambling away funds that were recovered from a previous exploit. The funds, amounting to approximately $260,000 at current prices, were withdrawn across 36 transactions from Cypher’s redemption contract, according to another Cypher contributor, Barrett, who uncovered the misappropriation.

The illicit withdrawals included ETH, WSOL, BONK, and other cryptocurrencies. Barrett, who exposed the transactions, promptly reported Hoak's actions to law enforcement. Hoak acknowledged the allegations in a public statement on Tuesday, expressing remorse and admitting to his actions. "I know nothing I say or do will make things better — perhaps other than rotting in jail,” 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.”

Hoak attributed his misconduct to severe mental health issues and a debilitating gambling addiction. He explained that his mental health had deteriorated over the past year, leading to erratic behavior and poor decision-making. "I let too many things pile up in my head for too long," he continued. "I let them consume me, and ultimately they took the best of me — I completely lost it late last year and earlier this year to the point where simply trying to hold it together was impacting everything else in my life, distancing myself from long-time friends, family, not being able to meet the deadlines I set for myself, having erratic behaviors, you name it."

The incident traces back to August 2023, when Cypher was hit by an exploit resulting in the loss of 38,530 SOL and 123,184 USDC. At the time, the total value loss from the exploit exceeded $1 million. In response, the Cypher team managed to freeze $600,000 worth of the stolen funds on centralized exchanges and established a redemption contract for users to reclaim their lost assets.

Barrett expressed deep disappointment over the misuse of the recuperated funds, particularly because Hoak had been a trusted member of the team committed to rebuilding the project post-exploit. "This is incredibly saddening to me," Barrett stated. "I never thought this would be a possibility, having a core contributor who stayed on after the exploit to try and rebuild the project be the one who rugged funds from the redemption contract."

The misappropriation came to light after a user in Cypher’s Discord community reported difficulties in withdrawing funds. Hoak initially assured the user that he would resolve the issue, but the problem persisted beyond the deadline he provided, prompting further investigation and the eventual discovery of the missing funds.

This incident underscores the challenges and vulnerabilities within decentralized finance (DeFi) projects, highlighting the critical need for robust security measures and transparent, accountable governance.