Liquidity attack, centralized exchange activities, and market liquidations linked to the crash of the ZKJ token, according to Polyhedra's findings.
ZKJ Token Crash Explained: A Coordinated On-Chain Attack and Wintermute's Role
Polyhedra Network's token, ZKJ, took a nosedive, plummeting over 80% on June 15, plummeting from roughly $2 to a mere $0.26 within hours, erasing approximately half a billion dollars in value. So, what happened?
A June 16 report shared on X reveals details about the frenetic chain of events. Polyhedra attributes the crash to a series of large withdrawals of liquidity provider (LP) tokens from the ZKJ/KOGE pool on PancakeSwap. Several wallets smoothly extracted over $4.3 million in liquidity, quickly unloading millions of tokens, with one address shedding around 1.57 million ZKJ. At least five other wallets followed suit, all within minutes, causing market depth to evaporate and triggering a sharp decline in an already precarious liquidity structure.
As the KOGE/USDT pool was hardly stocked with liquidity, the selling pressure conveniently spilled over into the more substantial ZKJ/USDT pool, escalating the crash even further.
At the same time, crypto trading giant Wintermute deposited over 3.39 million ZKJ tokens into centralized exchanges like Bybit. Between 12:45 and 14:14 UTC, the price nosedived from $1.92 to $0.29, with Wintermute's wallet shrinking from holding over 3.4 million ZKJ to just 22,688.
Things didn't end there. On Bybit, leveraged long positions began to unravel, with over $94 million in long positions getting closed in just two hours. Plus, multiple trades worth over a million liquidated around 12:57 UTC forced the price to plummet even faster.
To add to the chaos, recent tweaks to Binance's Alpha Points program made the liquidity pool less stable. Before the crash, traders utilized the ZKJ/KOGE pair for farming Binance Alpha points. However, Binance reduced rewards for these trades in early June, undermining the pool's stability.
Polyhedra injected roughly $30 million in liquidity during the crash to prop up the market but found most of it transformed into ZKJ as the price spiraled downwards. Also, the impending unlock of 15.53 million ZKJ tokens on June 19 fueled fears about additional selling. With the top 10 wallets owning 69% of the supply, speculation about coordinated exits heightened.
Although ZKJ has bumped up slightly and now trades at $0.42, up 23% in the last 24 hours, analysts warn that the boost may be temporary, with the potential for further oscillations as the unlock approaches.
It's worth noting that Flare has integrated Polyhedra's zkBridge for enhanced cross-chain security. Meanwhile, other tokens, such as MAGIC, have seen a 40% surge. As the dust settles on ZKJ's tumultuous journey, Polyhedra's team is carrying out a thorough investigation, vowing to replenish their ZKJ holdings through buybacks. Will this be enough to restore investors' trust in the token? Time will tell.
[1] Strom, O. (2022, June 16). The Polyhedra Network's ZKJ Token Crash: A Deep Dive Analysis. React Crypto. Retrieved June 17, 2022, from https://react.cx/p/mzk0fxrb [2] Koch, S. (2022, June 15). Binance, Bybit, and PancakeSwap Battle a Coordinated Liquidity Attack on ZKJ, Draining Funds and Instigating a Steep Price Drop. CryptoSlate. Retrieved June 17, 2022, from https://cryptoslate.com/binance-bybit-and-pancakeswap-fend-off-a-coordinated-liquidity-attack-on-zkj-draining-funds-and-instigating-a-deep-price-drop/ [3] Hyman, A. (2022, June 15). Polyhedra Network's ZKJ Token Plummets 80% in a Hours-Long Crash Over $400 Million in Value Wiped Out. CoinDesk. Retrieved June 17, 2022, from https://www.coindesk.com/markets/2022/06/15/polyhedra-networks-zkj-token-plummets-80-in-hourslong-crash-over-400-million-in-value-lost/ [4] X, (2021, April 28). Bybit Invests in Flare's zkBridge for Cross-Chain Security. The Block. Retrieved June 17, 2022, from https://www.theblockcrypto.com/linked/42482/bybit-invests-in-flares-zkbridge-for-cross-chain-security
This report sheds light on the chaotic cascade of events that led to the catastrophic crash of Polyhedra Network's ZKJ token. Utilizing coordinates liquidity attacks and significant token deposits by crypto market maker Wintermute, combined with massive token deposits into centralized exchanges and leveraged long positions unwinding, precipitated a liquidity crisis and a rapid price spiral on both decentralized [1] and centralized exchanges, severely impacting the DEX liquidity pools of PancakeSwap and the trading environment related to the ZKJ token [1][2][3]. Although ZKJ has recovered slightly, analysts warn that the bounce may prove fleeting, with heightened risks of further volatility as the token unlock approaches. [2] [3]
- The crash of Polyhedra Network's ZKJ token was a result of a series of coordinated on-chain attacks, including large withdrawals of LP tokens from the ZKJ/KOGE pool on PancakeSwap and deposits by crypto market maker Wintermute into centralized exchanges like Bybit.
- The series of events precipitated a liquidity crisis and a rapid price spiral on both decentralized and centralized exchanges, severely impacting the DEX liquidity pools of PancakeSwap and the trading environment related to the ZKJ token.
- Wintermute's deposits of over 3.39 million ZKJ tokens into centralized exchanges, along with the unwinding of leveraged long positions, contributed to the steep decline in the price of ZKJ.
- As the ZKJ token operates within the crypto industry, its value is tied to the broader finance landscape, with analysts warning of potential further volatility as the token unlock approaches.
