Axie Infinity-Linked Bridge Taken For $625 Million

Axie Infinity ($AXIE.NFT) set the standard for what “play-to-earn” (P2E) games on the blockchain could look like — the multi-billion dollar ecosystem they’ve built includes thousands of NFTs, two ERC-20 tokens (which are collectively worth billions in market cap), and a community base rivaling even major blockchains. 💪

Unfortunately, the P2E giant missed the mark on one thing — security. The game was exploited for 173,600 Ethereum and $25.5 million USDC. The culprit? The bridge that helps money move between Ethereum and the game’s blockchain, a side-chain called Ronin. Perhaps even more embarrassingly, Axie Infinity didn’t even notice the hack for days. Oof.

Investors use bridges to move non-native assets onto new chains without needing to buy, sell, or swap assets on exchanges (e.g: to move Bitcoin onto Ethereum; to move $USDT from one chain to another.) 💡

However, bridges often custody assets which back the asset to be issued on another chain. Wormhole, a bridge which was hacked last month, was hacked for $326 million. If not for the generosity of a donor, any Wormhole-denominated assets which traveled across the bridge would have been uncollateralized (that implies a complete loss for people who moved assets across the bridge to other chains.)

That’s why bridges are a black swan for crypto. 🤷 Ethereum co-founder Vitalik Buterin even echoed concerns about the “security limits of bridges” and cross-chain applications. He said that it would be safer to “hold Ethereum-native assets on Ethereum … [and] Solana-native assets on Solana” than to send non-native assets across the bridge.

The Ronin exploit isn’t that different from Buterin’s warning. The only major difference is that the Ronin sidechain isn’t explicitly financial, unlike many other applications and bridges that have been hacked. Instead, Ronin is the chain which intermediates most transactions for Axie Infinity. Unfortunately, that means the game’s economy has been rugged. 😬

The hack is an unprecedented one, setting a new “high score” on the Rekt News leaderboard tracking hacks in the DeFi and crypto ecosystem. The cumulative losses were reported to be $624 million, which was $23 million greater than the previous front runner. 🤦

On the news, the Axie Infinity governance token $AXS.X took a -7.7% hit. The game’s in-game currency, Smooth Love Potion ($SLP.X), lost- 8.3%. In the grand scheme of things, those losses are not that big when compared to the damage done to users and the broader ecosystem. However, the Ronin hack might count as a striking loss of credibility for one of the blockchain’s sweetheart projects. 💔

They might be in luck, though. The alleged thief reportedly sent the money to major exchanges such as Binance and FTX, which means the stolen funds could stand to be returned. FTX CEO Sam Bankman-Fried even acknowledged that the exchange was investigating and would take action where appropriate, which might mean that the exchange could return funds to the exploited bridge.

Imagine you’re walking on the red carpet—happy and confident—waving at the cheering crowd. 

But suddenly someone suddenly pulls the carpet under your feet and you fall on your face. 

Wouldn’t that be horrible?

This is what has happened to many crypto investors when some scammer shattered their dream of making money. This is called a rug pull. 

A rug pull is a crypto scam that happens when a team behind a project pumps its token and then abandons the project, sprinting away with the money. It leaves investors with a valueless asset.

Rug pulls are a type of exit scam that usually happen in the decentralized finance (DeFi) ecosystem. The practice is most commonly practiced on decentralized exchanges (DEXs), which allow tokens to be listed for free and without audit, unlike centralized crypto exchanges. Scammers create a token that’s listed on a DEX, then pair it with top cryptocurrencies like Ethereum.

There are different types of rug pulls.

1. Liquidity stealing: This is the most common type of rug pull where creators withdraw all the tokens from the liquidity pool. As a result, the value of all the currency goes down to zero. 
2. Limiting sell orders: This is a sophisticated type of rug pull in which a malicious developer embeds codes to prevent the selling of tokens or to prevent investors from cashing out. The moment they see enough positive price movement, they dump their positions, leaving a worthless token behind. An example of this is the Squid Token scam.
3. Dumping: Sometimes, developers sell their own tokens. As a result, the price of the token drops sharply, and the remaining investors are left holding worthless tokens. It typically occurs after a big promotion on social media. 

If investors are aware of the ecosystem, they can avoid rug pulls.

1. Check the liquidity: Decentralized exchanges, such as Uniswap, determine the price of tokens in a pool using an algorithm based on the balances available. To avoid being a victim of a rug pull, ensure there is adequate liquidity in the pool, and it’s locked. A locked liquidity pool ensures that a project has credibility and there will be enough money in the pool for a certain time period to determine the price of the token. 
2. Check the developer: Although the crypto world is all about anonymity and people behind the projects don’t show their faces, investors must read and try to find out who is behind the project and their past experiences. For that, they can read websites, telegram channels, whitepapers, and other media to check the project’s legitimacy. 
3. Skyrocketing price: Sometimes, the price of a newly launched token can soar in a single day, becoming the leading gainer of the day. However, these tokens have relatively few token holders. Investors can use a block explorer to check how many investors hold the token. If the number of token holders is smaller in number, that means there are a few whales betting on the token, and they can dump it whenever they want.
4. Extraordinary high yields: Crypto projects claim to offer better returns than stocks, and some of them are true. However, investors should always be skeptical of high yields, especially from new tokens, as it could be a Ponzi scheme. A high annual percentage yield (APY) can turn into a high risk.
5. Audit: Most crypto projects undergo a formal audit process from a third party, and they show it on their platform. Before investing in any project, one must check the audit report and make sure that it’s legitimate and safe for putting money.

The bottom line

The DeFi space is growing, and so is rug pull. One must do research and discuss with experts on platforms before putting money in because a) not every rug pull is illegal, some are unethical, so it’s difficult to fight for it, and b) since the space is anonymous, it’s difficult to identify who committed the crime.

Bitcoin mining is infamous for its notorious energy consumption, and now it is facing fresh criticism over its environmental impact. Some climate activists, including Greenpeace and Ripple co-founder Chris Larsen, have launched the “Change the Code, Not the Climate” campaign to turn Bitcoin into an eco-friendly cryptocurrency.

Bitcoin mining uses a proof-of-work (PoW) consensus model that requires high computational power and more energy to verify the transaction than the proof-of-stake (PoS) consensus, which is less harmful to the environment. Bitcoin mining alone consumes as much energy as the entire country of Switzerland does every year. Therefore, PoW is considered environmentally hazardous.

The $5 million campaign wants Bitcoin miners and industry leaders like Elon Musk and Jack Dorsey to switch from a proof-of-work (PoW) consensus model to a proof-of-stake (PoS) saying:

“If only 30 people — the key miners, exchanges and core developers who build and contribute to Bitcoin’s code — agreed to reinvent proof-of-work mining or move to a low-energy protocol, Bitcoin would stop polluting the planet.”

It is interesting to note that Greenpeace accepted Bitcoin donations between 2014 and May 2021 before deciding to discontinue accepting Bitcoin donations due to environmental concerns. Around the same time, Tesla CEO Elon Musk announced that he would cease to accept Bitcoin payments for Tesla vehicles.

Though “Change the Code, Not the Climate” aims to develop an eco-friendly Bitcoin, the Bitcoin community is unhappy with the campaign since it targets Bitcoin specifically. Crypto expert Nic Carter responded on Twitter with a thumbs-down meme, writing: “As a Bitcoin Node Operator and member of the Bitcoin High Priesthood that Controls the Protocol, I have duly considered Ripple’s and Greenpeace’s request to eliminate PoW from Bitcoin, and I hereby… deny it.”

The campaign seems to be a big fan of proof-of-stake and Ethereum — which is planning to switch to a PoS model soon this year.

In an interview with Bloomberg, Larsen said, “Now with Ethereum changing, Bitcoin really is the outlier.”

 “Some of the newer protocols, Solana and Cardano, are built on low energy,” he added.

Even though Larsen denied that the “Change the Code, Not the Climate” campaign is anti-Bitcoin, the campaign’s chances of success seem slim. This is because the Bitcoin community has rejected all changes to the system designed by Satoshi Nakamoto, the anonymous inventor of Bitcoin. Bitcoin maxis say that they don’t want to compromise the security and verification process of the top cryptocurrency. Rather than changing the PoW consensus model, they are more inclined to advocate green energy mining by using non-conventional forms of energy such as geothermal mining.