Fireblocks faces lawsuit from StakeHound over loss of $75M worth of ETH

• StakeHound has filed a lawsuit against Fireblocks regarding the loss of 38,178 ETH.
• Fireblocks said it is not responsible for the loss.

Liquid staking provider StakeHound has filed a lawsuit against crypto-custody firm Fireblocks over the loss of Ethereum (ETH), worth nearly $75 million. StakeHound claimed that it entrusted Fireblocks with the ETH and added the crypto-custody company locked it out of the wallet containing the cryptocurrency. The wallet had 38,178 ETH coins. 

StakeHound blames Fireblocks for loss of access to ETH coins 

According to the lawsuit filed on the 22nd of June, StakeHound said that the ETH loss resulted from Fireblocks’ negligence. The suit was filed at the Tel Aviv District Court by three Gornitzky & Co. law firm attorneys – Eli Cohen, Alex Feldsher, and Nuna Lerner. The crypto asset cannot be recovered because there is no backup available. StakeHound blamed the whole event on an employee of Fireblocks who did not back up the private keys to the digital wallet. With no backup, the private keys were deleted, and StakeHound lost access to its assets. 

StakeHound complained about the loss:

This is a human error committed by an employee of the defendants, who worked in an unsuitable work environment, did not protect or back up the defendant’s private keys needed to open the relevant digital wallet, and for no apparent reason, the keys were deleted, preventing the plaintiff’s digital assets from being accessed.

Also, StakeHound maintained that the case is not a “simple situation” of loss of private keys. Instead, the firm asserted that Fireblocks did not transfer its private keys to Coincover according to their agreement. StakeHound continued:

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.

Fireblocks denies StakeHound’s claims

However, Fireblocks has denied the allegations. The crypto-custody provider said that the private keys were generated by StakeHound and stored outside the Fireblocks platform. In addition, Fireblocks said that StakeHound did not follow its guidelines in storing the backup. Fireblocks stated that StakeHound did not save the backup with a third-party service provider according to the rules. 

Coincover is the company in charge of backing up the private keys. When Coincover received the keys, the company was unable to confirm if they could open the digital wallet due to the confidentiality agreement. Fireblocks needs to keep a copy of the keys for verification during the recovery process. 

Commenting on the lawsuit, Fireblocks CEO Michael Shaulov said that StakeHound’s claim is entirely incorrect. In addition, the CEO said that StakeHound caused the act of negligence. Speaking further, Shaulov mentioned that Fireblocks has never lost wallet keys. He assured that all the company’s keys back up automatically and that the keys back up every ten minutes in three locations. 

Also, Fireblocks has customers that their funds are safe regardless of the recent incident. The company also said that it is currently investigating StakeHound’s ETH loss.  

Fireblocks secured $133 million in a Round C series funding led by Coatue and Ribbit in March. Other participants in the financing were Tenaya Capital, Cyberstartes Ventures, Galaxy Digital, Paradigm, and Swisscom Ventures.