Polyhedras Sudden 80% Price Drop: A Case Study on Liquidity Attacks and the Buyback Promise
In a shocking turn of events, the crypto community was left reeling after Polyhedra, a protocol that achieved unicorn status last year, experienced a sudden 80% drop in the value of its native token ZKJ within minutes. The founder of the company, Tiancheng Xie, wrote in a post on Tuesday that the team is currently assessing the situation and preventing future financial attacks.
On June 15, ZKJ plummeted from roughly $2 to just 32 cents in under an hour, resulting in a loss of nearly $500 million in market cap. An initial post-mortem released in Asian morning hours identified various factors contributing to the collapse, including a coordinated liquidity attack on PancakeSwap's ZKJ/KOGE pool, substantial ZKJ deposits by market-making company Wintermute into centralized exchanges, and a cascade of liquidations on CEXs like Bybit.
On-chain data revealed that several addresses had drained millions from the ZKJ/KOGE pool, with one address removing about $4.3 million in liquidity provider (LP) tokens and dumping 1.57 million ZKJ. As the shallow KOGE/USDT pool couldn't absorb the sell pressure, activity spilled over into the deeper ZKJ/USDT pool, triggering a liquidity spiral. The team also noted that a Wintermute-associated address deposited over 3.39 million ZKJ into centralized exchanges during the crash window. However, in an X post, Wintermute co-founder Evgeny Gaevoy clarified that the team was selling spot and going long via ZKJ-tracked futures.
To stem the hemorrhage, Polyhedra's team injected approximately $30 million in USDT, USDC, and BNB as DEX liquidity, adding that no ZKJ holdings belonging to the team were sold. The team is conducting a full technical investigation and plans to launch a buyback initiative to offset the impact of the attack and deter similar future exploits.
Token prices rose by more than 50% following the release of the crash report, but all gains were reversed throughout the day, and prices are now up just 1.3% over the past 24 hours. Despite the setback, Polyhedra remains committed to rebuilding trust in the crypto community and ensuring the safety of its users' assets.
