Polyhedra Blames Liquidity Attacks for Sudden 80% Price Drop in ZKJ, Promises Buyback
Polyhedra, a crypto protocol that achieved unicorn status last year, is implementing a recovery plan following a significant market crash. Its token, ZKJ, experienced an 80% drop in minutes on June 15th, resulting in a nearly $500 million loss in market capitalization. The price plummeted from approximately $2 to $0.32 in under an hour.
The incident involved a complex series of events, according to Polyhedra’s post-mortem analysis. A coordinated liquidity attack targeted the ZKJ/KOGE pool on PancakeSwap, with multiple addresses withdrawing millions of dollars in liquidity provider (LP) tokens and subsequently dumping large quantities of ZKJ. This triggered a liquidity spiral, exacerbated by the relatively shallow KOGE/USDT pool’s inability to absorb the selling pressure. The ensuing sell-off spread to the deeper ZKJ/USDT pool, amplifying the price decline.
Wintermute, a market-making company, played a significant role in the crash. While Polyhedra’s report stated that a Wintermute-associated address deposited over 3.39 million ZKJ onto centralized exchanges during the crash window, Wintermute co-founder Evgeny Gaevoy clarified on X that their actions involved selling spot and taking long positions in ZKJ-tracked futures. The subsequent collapse in spot prices triggered the liquidation of approximately $94 million in leveraged long positions, further compounding the price drop. Numerous six-figure margin calls intensified the crash.
In response, Polyhedra injected roughly $30 million in USDT, USDC, and BNB to provide liquidity on decentralized exchanges (DEXs). The company maintains that none of its own ZKJ holdings were sold during the incident. They are conducting a full technical investigation and have announced a buyback program to mitigate the attack’s effects and prevent future occurrences. While the initial release of the report led to a temporary price surge of over 50%, these gains were short-lived, with the price currently showing only a minor increase of 1.3% over the past 24 hours. The situation highlights the vulnerabilities of decentralized finance (DeFi) protocols to coordinated attacks and the cascading effects of liquidity crises.
