Disclosure: The views and opinions expressed herein are solely those of the author and do not represent the views and opinions of crypto.news editorial.
Few cases have generated as much attention as the Sam Bankman-Fried trial. As allegations of fraud and money laundering surfaced at FTX affiliate Alameda Research, the cryptocurrency community was reminded of the need for strong crisis management. Cryptocurrency projects operate in a perfect storm of volatility, regulation, hacking, and technical complexity. Any mistake can snowball into an existential crisis in an instant.
The cryptocurrency crisis is not limited to legal battles. Threats range from unauthorized data access and technical code vulnerabilities to malicious hacking. Add to this the ever-changing regulatory environment, and projects find themselves navigating a maze of potential pitfalls.
And the proof is data. In 2023, 297 cryptocurrency hacking attacks resulted in losses of $1.89 billion. This means a loss of $289,000 per hour. Last year, hackers stole $3.8 billion worth of cryptocurrency, making it the worst year on record, according to Chainalytics.
This guide outlines five important steps cryptocurrency projects should take to prevent a crisis on their own, from forming a response team to analyzing threats and managing communications. With the right plan, your next crisis doesn’t have to turn into a death spiral.
When a crisis strikes, you need adequate staffing to respond quickly and effectively. Start by assigning crisis leads based on the situation. In case of legal issues, the General Counsel may point out. Empower your CTO or head of engineering to handle technology crises.
Next, notify your communications team. Their role is to draft statements, liaise with the media, and manage public perception. Check with a company spokesperson (ideally the CEO or another senior leader).
Finally, inform your key advocates and loyal community members. Their organic support through social media will be invaluable if the crisis becomes public. Having a trusted voice to respond to FUD is essential to reputation management.
Build a response team to quickly analyze the current situation. Measure the severity. How serious is the situation now, and could it get worse? Legal threats can worsen over time, and technical glitches can cause immediate harm.
Make sure the crisis is publicly known. If so, you should respond quickly with an official statement. If not, assess the likelihood of a leak or disclosure. Scenario planning helps with deterrence.
Understand how and why the crisis occurred. Was it internal like a code bug? Or is it something external like a lawsuit? Either way, learn from your mistakes and avoid a repeat of the disaster.
If your crisis situation is public, draft a brief holding statement and share it across your holding channels. Reassure your community by:
- You know the situation.
- We are actively responding.
- We will provide updates in a timely manner.
When Crypto.com was hacked for $34 million in Bitcoin and Ethereum in January 2022, here was their tweet response:
Inform advocates and provide guidance on response. Their organic voices will shape the public narrative.
Once your statement is ready, distribute it on social media, outlets, Discord, or wherever you have a community.
Express support and confidence in your answer by engaging advocates. A chorus of validators increases trust and soothes concerns.
Consider reaching out to friendly, trustworthy reporters who can share crisis news in a balanced way. Don’t be silent and don’t give up control of the story.
Immediately extinguish the fire and review how the crisis response was implemented. What worked and what could be improved? Compile what you have learned.
Consider analyzing the event publicly with an intermediate post-mortem. Transparency about mistakes shows integrity and responsibility.
We analyze the root cause to prevent recurrence. We update our policies, procedures and communication plans accordingly.
To understand the real picture of effective crisis management, let’s look at two recent cryptocurrency cases: the MakerDAO protocol failure and the BlockFi data breach.
In March 2020, a glitch in MakerDAO’s system resulted in a protocol error that cost investors $8 million. The manufacturer acknowledged it was aware of the pending legal action but did not comment publicly. However, they did post a transparent analysis of the event on their blog. We’ve also directed affected users to our forums for discussion and support.
This quick approval and redirection to channels he owned allowed Maker to control the narrative. Although the system failure caused extensive damage, their response limited reputational damage.
In contrast, when BlockFi suffered a data breach in March 2022: exposure Customer information was not delivered in advance. Even though the hack quickly made news, BlockFi remained silent on social media. They did not involve advocates or friendly media. Four days after the event, BlockFi finally published a general blog about cybersecurity.
This opaque approach has created confusion and eroded trust in the community. By not answering questions, BlockFi has handed control of the narrative to speculation. No crisis response is perfect, but timely engagement makes a big difference.
With a proper crisis response plan in place, your next crisis doesn’t have to be an existential disaster. Stay resilient through preparation, coordination, and transparency. The cryptocurrency community will reward projects that emerge stronger after the storm.
This article is co-authored. Trey DittoCEO of Ditto PR; Anouk MorinI am the web3 PR lead at Ditto PR.