Crypto groups criticize FTC “kill switch” proposal after Nomad hack

Cryptocurrency trade associations in the United States have condemned a complaint lodged by the Federal Trade Commission, which alleged that a Utah-based company violated the law by developing software lacking a designated kill button.

The software, a cryptocurrency bridge named Nomad, was hacked for around $200 million in 2022. Despite the developers' successful recovery of millions in stolen cryptocurrency, Nomad has not gained significant traction since its launch in December of that year.

Despite the project's apparent inactivity, the parent business, Illusory Systems, consented last year to resolve a complaint lodged by the FTC.

The government accused Illusory Systems of not implementing adequate measures to safeguard its software. However, its interpretation of “reasonable and appropriate” has caused concern within the cryptocurrency sector.

The FTC said in the complaint, shared with the proposed settlement in December, that the company failed to use ‘circuit breakers' or a ‘kill switch' that could quickly stop the Nomad Token Bridge from working during questionable transactions.

However, in a letter to the agency this week, four crypto trade associations stated that this technology is far from industry standard and may potentially render software more susceptible to hackers.

Furthermore, the letter claims that the existence of a kill switch suggests unilateral control, which is an intolerable need for developers trying to create decentralized protocols.

The tiff is the most recent illustration of the various ways in which authorities tasked with safeguarding consumers might impose restrictions on developers' capacity to create such software.

The Nomad hack

Cryptocurrency bridges enable users to transfer their digital assets between incompatible blockchains. However, they have demonstrated to be a profitable target for hackers.

In April 2022, Nomad announced the acquisition of $22 million at a valuation of $225 million to develop “security-first interoperability.”

Notwithstanding Nomad's claims, merely four months later, around 300 hackers exploited a vulnerability in the bridge, absconding with $186 million in cryptocurrency, a situation the FTC ascribed to “inadequately tested code.”

TRM Labs, a crypto forensics company, described it as “one of the most remarkable and chaotic hacks in decentralized finance history” last year.

The company was able to recover about $37 million because ethical hackers joined the theft to prevent criminals from stealing every last penny. However, a renewed bridge did not acquire any traction; according to DefiLlama data, as of Friday, it only had $1 million in user deposits.

Over two years have passed since Nomad's last post on X.