StakeHound Upgrades Smart Contract to Remove stETH from Pools After Suing Fireblocks for $75M Loss

38,178 ETH has been lost forever due to the loss of private keys to the digital wallet.

Cryptocurrency company StakeHound filed a lawsuit against Israeli company Fireblocks claiming that it lost its approximately $75 million worth of cryptocurrencies.

Fireblocks, a secure cross-enterprise asset transfer infrastructure developer, raised $133 million in a Round C series earlier this year led by Coatue, Ribbit, and existing investors, including Paradigm, Galaxy Digital Tenaya Capital, Cyberstarts Ventures, and Swisscom Ventures.

According to the lawsuit filed at the Tel Aviv District Court, StakeHound claims that it was due to the negligence of a Fireblocks employee that their crypto assets have been lost. The lack of backup of the private keys to the relevant digital wallet means lost funds can not be recovered.

Fireblocks has denied any wrongdoing saying, “The keys were generated by the client and stored outside the Fireblocks platform,” and that “the customer did not store the backup with a third-party service provider per our guidelines.”

Coincovers was the company entrusted with backing up the private key.

StakeHound claimed that it’s not a simple situation where the private keys were simply lost; rather, “the defendants did not transfer the relevant private keys to Coincover as required and agreed upon.”

“This resulted in a disaster and damage: The defendant irrevocably lost access to the plaintiff’s digital assets, which were deposited in an e-wallet provided by the defendant, causing the loss of 38,178 of the plaintiff's ETH coins.”

According to Fireblocks CEO Michael Shaulov, the plaintiff's claim is incorrect and what happened was StakeHound was staking its ETH. He told Calclaist,

“In the framework they created, there is a password the client needs as soon as the new network is established. Fireblocks does not create the password for the network because it does not yet exist. This is a technology we do not know how to support.”

On Tuesday, StakeHound released a statement in regards to Fireblocks ETH 2.0 Key Management Incident, reiterating that a series of errors by Fireblocks caused the loss of 2 keys.

Fireblocks did not generate their private keys in a production environment, didn’t include the private keys required to decrypt their 2 key shares in the backup, and lost both keys, they said.

For now, the team has decided to perform a smart contract upgrade to remove stETH from the liquidity pools while preventing it from being sent to the pools.

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