While the gaming mainstream remains deeply distrustful of anything related to crypto, one of the apparent successes was Axie Infinity: a Pokémon game built around pets called Axies that can be traded, battled and, of course, claimed to have some sort of “real” value . Axie Infinity’s ecosystem was valued in the hundreds of millions. Then, on March 23rd, the company’s ‘sidechain’ Ronin network was hacked, with the perpetrators stealing Ethereum and USDC stablecoins which at the time were valued at around $600 million.
The game’s developer Sky Mavis was forced to acknowledge the hack and disable token withdrawals. But not until Trung Nguyen, CEO and co-founder, transferred $3 million worth of AXS, Axie’s main currency, from the game’s blockchain to Binance, a crypto exchange.
I appreciate that this is turning into a word salad of crypto terminology. The important point is that when the outside world was unaware of the hack, or that in-game trading would be suspended as a result, a key player transferred a lot of value out of the Axie ecosystem. Oh: and no one should have realized.
The transactions were first noticed and analyzed by Asobs, a YouTuber who analyzes the crypto scene (opens in a new tab). They were tipped off about a wallet that had moved 48,838 AXS tokens from Ronin (the sidechain network) to Binance, a large amount, and were able to dig back through this wallet’s transactions to see that it had received the largest initial payment of AXS -tokens when the game started.
Asobs then tracked down additional wallets allegedly belonging to Sky Mavis employees through this method, a great tactic because the studio transfers AXS to employees regularly. Several of these had also made large transactions at the same time as the wallet that Asobs would later link to Nguyen.
Bloomberg Business then picked up the baton, which soon ended with Sky Mavis admitting the transaction and Nguyen owning the wallet in question.
Kalie Moore, a spokeswoman for Sky Mavis, claimed to Bloomberg (opens in a new tab) Nguyen was actually trying to help the Axie Infinity finances and ensure that there was enough liquidity available. She wrote:
“At the time, [Sky Mavis] understood that our position and options would improve the more AXS we had on Binance. This will give us the flexibility to pursue different options to secure the loans/capital required. The founding team chose to transfer it from this wallet to ensure that short sellers, who track official Axie wallets, would not be able to show the news ahead of time.”
Moore adds that suggestions of any other motive are “baseless”. Following this coverage, Nguyen herself took to social media:
The founding team chose to transfer it from my wallet to ensure that short sellers, who track official Axie wallets, would not be able to show the news ahead of time.28 July 2022
“This story includes speculation about insider trading,” writes Trung. “These accusations are baseless and false. In fact, the founding team even deposited $7.5 million from a well-known Axie multi-sig wallet TO the Ronin Network before the bridge was closed to avoid triggering short sellers who are watching. My life’s work is Axie Infinity and the community we’ve created together. I take ownership of the security breach, and will use it as a learning experience.”
Trung also goes on to claim that “the bridge has been reopened with all player funds backed 1:1. Many in the media have conveniently ignored this, as it does not fit their pre-determined narratives.”
It is true that Sky Mavis, after the hack, immediately raised just over $150 million in funding, some of which was earmarked to reimburse victims of the attack, and the trading suspension was only temporary. But the 1:1 claim fails to mention that the value of an AS token was $64 before the hack and now trades for more like $18.
“We can see the money moved,” says Asobs. “The only question is what happened behind the money moving.”
On 19/5 I contacted someone in Sky Mavis with the information. The story started with no one except the founders knowing about the hack until it was announced. Then there were a few people who potentially knew. Now they also claim that people at Binance also knew…28 July 2022
Whatever has been going on here is murky in a way typical of crypto: a space where material value is always several steps removed and, in the cases of ecosystems like Axie Infinity, ultimately controlled by its guardians.
One thing is certain, and that is that the hack was very real. The U.S. Treasury Department caught the heist (opens in a new tab) on the North Korea-based hacker collective calling itself the Lazarus Group and added them to its international sanctions list, saying in a statement sent to PC Gamer that this was due to the FBI identifying a digital wallet linked to the heist.
“Through our investigation, we were able to confirm that the Lazarus Group and APT38, cyber actors associated with the DPRK, are responsible for the theft of $620 million in Ethereum reported on March 29,” an FBI representative told PC Gamer. “The FBI, in coordination with the Treasury Department and other US government partners, will continue to expose and combat the DPRK’s use of illegal activities — including cybercrime and cryptocurrency theft — to generate revenue for the regime.”
The Lazarus Group has stolen hundreds of millions of dollars worth of crypto over the past few years, and some crypto security experts estimate that as a result, the rogue nuclear state may now be sitting on over half a billion in unlaundered crypto assets. The US says this is about avoiding sanctions and funding its weapons programs, and takes the threat very seriously: recently imprisoned a former employee of the Ethereum Foundation (opens in a new tab) for more than five years (and fined him $100,000) for giving a presentation in North Korea in 2019 about “using cryptocurrency technologies to evade sanctions and money laundering.” It was probably not the wisest title for a speech.
As for Axie Infinity, it chugs along, although recent reports suggest that the in-game economy is experiencing its own collapse as digital “landlords” struggle to find players willing to do the dirty work for them. (opens in a new tab) Games for profit have never seemed like a particularly attractive prospect, and when you look at the kind of stories that coalesce around these projects, it’s no wonder.
