Rapture #180: Ronin Bridge Exploited

Rapture #180: Ronin Bridge Exploited

Welp, I am glad I am no longer staking AXS via Ronin. Yesterday, the market discovered that Ronin network was exploited to the tune of $625 million worth of ETH and USDC. AXS and SLP were not targeted. The size of this exploit makes it the largest to date according to Rekt's leaderboard.

How did it happen

The exploiter used the private keys that control Ronin validators in order execute withdrawals from the network. The exploiter did so by gaining control to 5/9 validator signatures. Interestingly, hundreds of stollen ETH were transferred to FTX, which KYCs all of its users. Of course, the fact that the ETH were transferred to FTX does not mean that the identity used for the account that received the transfer is tied to the actual identity of the exploiter. Accounts can easily be created and sold on dark markets.

All evidence thus far points to the exploiter using social engineering vectors in order to gain control of the validator signatures. Chainanalysis and Crowdstrike are currently under contract by Sky Mavis to monitor the stolen funds and handle forensics.

Sky Mavis' reaction

Sky Mavis, who created Ronin and Axie Infinity, intends to recover or reimburse all stolen funds, though plans for exactly how that might happen have not been disclosed.

Since the exploit, the bridge to Ronin has been temporarily shut down by Sky Mavis, meaning users have not been able to deposit or withdraw assets on the sidechain. Had I been still staking AXS on Ronin, I would not have been able to withdraw my funds. I have not seen a timeline for when the bridge will be live again.

This exploit actually occurred nearly a week ago, with the team taking six days to figure out the assets were being drained. In fact, the exploiter tried to short AXS and RON around a week ago, though both have been in an upwards trend with the BTC breakout and thus the exploiter actually lost money because the market had not yet priced in the event.

Market reaction

Both RON's and AXS' prices were adversely affect by the exploit. RON was down around 23% on the news, while AXS dropped 6%. These drops could have been far worse if we had different crypto macro conditions, as the recent bullish sentiment has likely muted the market's negative reaction somewhat.

Another secondary effect of this exploit is now leading degen traders are starting to cover  all the bearish activity happening with Axie Infinity, which I have consistently pointed out in previous editions of Rapture because of my interest in the project.

My take

Exploits happen. While this one is particularly large, I do believe that the Sky Mavis team will find a way to reimburse users.

This event has brought negative attention to the problems in the Axie Infinity ecosystem, which further solidifies my bearish thesis on AXS, at least against the rest of market. If a bull market returns, all assets will do well, but I speculate AXS will underperform.  


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