- February 4, 2022
- By: Admin2_blog
- Crypto Market
If there’s one thing more shocking than the fact that a hacker was able to exploit a software bug and drain some $320 million worth of cryptocurrency from something called Wormhole, it’s this: Backers of the project were able to replace the pilfered tokens in a matter of hours.
In another, not-so-distant era, this was the type of coding bug that could have threatened to put a traditional financial firm out of business. In fact, that almost happened to Knight Capital Group Inc. a decade ago. The electronic market maker was driven to the brink of bankruptcy by some bad code, before a dramatic bailout among many of Wall Street’s best-known shops allowed it to avoid Chapter 11. The firm was later taken over by a rival.
In the case of Wormhole, the problem with the code turned out to be almost as disastrous as the one that forced Knight to seek a $400 million cash infusion to survive. Yet the move-fast-and-break things ethos of the crypto world was met with a startling move-fast-and-fix things response this time. Jump Trading Group, which helped develop Wormhole, put up the money to replace the 120,000 wETH, or “wrapped Ether,” that the hacker was able to create and then abscond with.
And it’s not the only example. Last month, hackers fleeced the exchange BitMart to the tune of $150 million in cryptocurrencies. BitMart, which had just closed a venture-capital funding round, used its own capital to cover the incident.
The incidents highlight just how much cash — both traditional and digital — is sloshing around the crypto world, and how quickly it can be put to work with seemingly little time spent put into thinking about the risks of throwing good money after bad. Wormhole’s savior, Jump Trading Group, has roots that lie in the same high-frequency trading and electronic market making industry where Knight operated. Its quick and expensive response suggests it sees enormous potential profits in crypto despite a nine-figure setback.Development of Wormhole was originally started by a company called Certus One. Jump acquired Certus One last year and took over development of the Wormhole protocol, which is what’s known as a “bridge” that connects different blockchains, such as Ethereum and Solana, to allow tokens to trade on blockchains other than their home turf.
Such a bridge helps traders avoid the famously slow and expensive transactions on the Ethereum network, which underpins many crypto projects. In this episode, faulty code allowed a hacker to create, or “mint,” a token tracking the cryptocurrency Ether on the Solana blockchain, and then move it back over to the Ethereum network.
Jump’s participation in the project is part of its ambition to be more than just a crypto trading firm. Instead, it aspires to be a major architect and developer of the infrastructure of the next generation of the crypto market as it matures and gains more institutional acceptance.
“I think it’s because Jump believes bridges are of paramount importance to the long-term success of the crypto ecosystem,” said Kyle Samani, co-founder of Multicoin Capital, which manages a hedge fund and venture fund in the crypto space. “Given Jump’s background in providing liquidity and HFT in traditional markets, they have a unique perspective on how to think about the importance of bridges.”
He added: “Given the size of investment they have and continue to make, and the willingness to cover 100% of this loss, I assume they intend to profit from Wormhole somehow in the long run.”
Chicago-based Jump’s efforts in crypto partly trace their origins to a group of interns at the University of Illinois, including Kanav Kariya, the head of the company’s crypto division. In an interview last year, Kariya said Wormhole has enormous promise. “I don’t think you can think big enough,” he said.
Dave Olsen, the president of parent company Jump Trading Group, has compared the effort to the earliest American traders who met under a buttonwood tree on Wall Street in the late 1700s to hash out the structure and rules that would govern the New York Stock Exchange. “In a lot of ways, we’re getting back to first principles of trading,” he told Bloomberg Businessweek in an interview published last month.
As its crypto project was taking shape, Jump was, to put it generously, effusive in its enthusiasm. In an essay unveiling its approach to the space, the trading firm said it was always asking how it could do more.
“The resounding answer has become a battle cry for our team: to build,” the firm wrote. “To build the plumbing and the railroads, and to build communities. The rhythm of that chant has driven us deeper into the ecosystems we’re involved in and unearth the trove of system design and engineering problems that lie between us and the promised land.”
In this case, a hacker helped them do exactly that. Yet it was a very expensive pit stop on the road to the promised land.