Will Axie Infinity be able to survive the biggest hack in cryptocurrency history?

Axie Infinity is going through the most challenging moment of its four years of life after having its network hit by the biggest hacker attack ever recorded in the history of the cryptocurrency sector.

It took the developers of Ronin — an Ethereum sidechain built especially for the game — a week to realize that nearly BRL 3 billion worth of cryptocurrencies — 173,600 ETH and 25.5 million USDC — were stolen from the network on March 23. At the time, the attacker was able to obtain five of the nine validator signatures needed to approve the fraudulent withdrawal of funds.

The Ronin team’s lack of attention to its reservation, the centralization of the network in the proof of authority (PoA) model that allowed the hacking to happen, added to the lack of care of the validators – mainly from Sky Mavis, the game’s developer who was responsible for the security of four of the five signatures hacked — formed a snowball of problems that worry the project’s players and investors.

Will Axie Infinity be able to survive this hack? And if so, how? Heloísa Passos, CEO of blockchain games company SP4CE, told the report that Sky Mavis’ upcoming actions will be decisive in determining whether a successful recovery of the gaming ecosystem will be possible.

“It’s too early to say if Axie Infinity will die or not, but I think the game has a good chance of surviving, remembering that they managed to raise a lot of institutional investment last year, so there’s a strong structure behind the game,” he explained. steps.

The risk of centralization

The hack exposed a number of vulnerabilities that exist beyond Ronin’s technical framework. It mainly served to show how an ecosystem controlled by a small group of people is a hacker’s preferred target. After all, it is much easier to steal the signature of five validators than it is to steal thousands.

“Certainly the structure of Axie Infinity is flawed: you have nine validators for a project the size of Axie and most of those validators are centralized in Sky Mavis. So we are talking about a network that has an absurd centralization problem”.

The co-founder of the blockchain gaming guild BAYZ, João Borges, defends the maintenance of the model that the Ronin network currently adopts, but also criticizes the low number of validators:

“I believe it is a reliable model that consumes less energy compared to other proof-of-work blockchains. The flaw is that they structured a network of only nine validators, which despite being faster and more efficient, systematically increased the chances of potential exploits.”

The centralization problem becomes even more latent when we see that the Axie Infinity token (AXS) was created to serve as a governance currency and ensure that its holders participated in the game’s decision-making, a promise that was never fulfilled.

“If you say you have a governance token and it doesn’t work for that, the game’s structure has a problem”, explains Passos, adding that after this attack, it’s essential that the entire game team dedicates itself to rethinking and reformulating the way it operates.

“What I think they should do to save the network is rethink how to improve security and end centralization by reevaluating governance within Axie. They should listen to the community and be more attentive: to go six days without knowing that their network has suffered a half-billion dollar hack is absurd”, evaluated Passos.

Despite the criticism, the expert is hopeful that the Axie Infinity team can come out of this hack stronger, taking advantage of the incident to identify what needs improvement and deliver that to the community.

João Borges also believes that Sky Mavis has “one of the most competent communities and staff in the industry”, and is confident that the game will survive this moment.

“Few remember that Axie Infinity is still at the beginning of its development, they are about to launch the new version of the game (Origin), Lands game mode also to be released, among other news”, he recalls.

The loss of players

Heloísa Passos explained to the report that this money that was stolen from Ronin’s bridge was used to feed the liquidity pool of Axie Infinity’s decentralized exchange (DEX), Katana.

A liquidity pool, it is worth remembering, is the basis of how decentralized finance (DeFi) protocols operate: individuals or entities provide liquidity for a trading pair, i.e., lock cryptocurrencies to allow buyers and sellers to transact without having to wait. someone on the other side willing to negotiate at that moment.

As the developers temporarily suspended the Ronin network to solve the problems caused by the hack, no investor is getting their money out of the bridge. In fact, even if the network were available, there would be no funds to withdraw since most of the cryptocurrencies that powered the bridge were stolen.

But even if Sky Mavis fails to recoup the money, it is unlikely that network users will not be compensated for the incident, as the company has already pledged not to let anyone else lose out.

Now the hacker’s wallet is on the radar of every crypto market, from forensic investigators to cryptocurrency exchanges. For stealing a large amount of crypto assets — which were later all converted to Ethereum — the attacker will have a hard time laundering that money on the blockchain.

The hacker even managed to send a small portion of the coins to centralized exchanges such as FTX, Houbi and Crypto.com, in the period when the attack had not yet been discovered. But according to data from SlowMist, about 175,913 ETH still remain at the attacker’s address and 1,279 ETH in the process of being transferred.

“The fact that all the wallets and transactions involved in the theft are already tracked and placed on a worldwide Black-list greatly limits the possibilities of what hackers can do and I believe that in the medium or long term the Axie Infinity team will be able to solve this problem. this problem”, concluded Borges.

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