In March this year, the blockchain industry was hit by one of the biggest heists in its young history when hackers infiltrated Axie Infinity and took off with over $600 million in USDC and Ether tokens. The gaming company immediately halted withdrawals for its users as it dealt with the hack. But as a new report now reveals, Axie’s CEO moved close to 50,000 AXS tokens to Binance after the hack was discovered, but hours before the company came clean to the public.
The March hack targeted the bridge that connects the Ronin sidechain, which the Axie Infinity game runs on, and the Ethereum mainchain. Axie has to depend on the sidechain as Ethereum can’t scale to handle the number of transactions such a game generates.
The report by Bloomberg revealed that Trung Nguyen, the CEO and founder of Sky Mavis, the Vietnamese company that built Axie, moved 48,838 AXS to Binance, worth around $3 million at the time. Since blockchain addresses are pseudonymous, the wallet that made the transaction wasn’t immediately linked to Nguyen.
However, a blockchain gaming sleuth took an interest in the transaction and started digging into it. Known only as Asobs, he discovered that the wallet was the biggest recipient of AXS tokens during the initial distribution, getting 550,000 tokens. It also has a record of transacting with Trungfinity.eth (a confirmed Trung wallet) and also receives the highest payments from the smart contract address that pays Axis employees.
Asobs approached Sky Mavis with the information, but as he says in a video, the company’s response left him with more questions than answers.
Bloomberg took up the investigation, working with two blockchain experts at Winthrop University to independently confirm the details.
Initially, Sky Mavis conceded that the wallets belonged to an employee but denied any links to the CEO. According to the company’s spokesperson Kalie Moore, whoever sold the tokens had every right and was probably doing it to take advantage of a recent price rise.
“Sky Mavis routinely tracks on chain transactions for employees and after reviewing, believes anyone who sold after the incident, but before the bridge was closed, sold due to [AXS] increasing 49% in price over a short period of time prior to the breach being discovered,” Moore told Bloomberg at first.
Axie CEO: Insider trading accusations are baseless and false
While Moore claimed that the transaction was not made in connection to the hack, it looked awfully suspicious, to say the least. For one, there was a 22-hour window between the hack being discovered and the developers freezing the assets. At that time, this withdrawal was by far the largest. In fact, according to Winthrop University experts, the overall daily AXS withdrawals from Axie this year have averaged just above this amount at 55,000 AXS.
Presented with this evidence, Moore confirmed that the transaction was made by a member of the founding team, but sought to distance this member, whom she would not name, from accusations of insider trading. According to her, it was all done to protect the users.
“At the time, we (Sky Mavis) understood that our position and options would be better the more AXS we had on Binance. This would give us the flexibility to pursue different options for securing the loans/capital required,” she said.
Sky Mavis decided against transferring the AXS to Binance from its official wallets as this would reportedly spook the market, and those with keen eyes would be able to front-run the news, she added.
After the exposé was published, CEO Nguyen took to Twitter to deny any allegations of insider trading, calling them “baseless and false.” He backed the claims that the team only used his wallet to avoid quick hands from front-running the news.
This story includes speculation of insider trading. These accusations are baseless and false. In fact, the Founding Team even deposited $7.5M from a known Axie multi-sig wallet TO Ronin Network prior to the bridge closing to avoid triggering any short-sellers watching.
— Trung Nguyen (@trungfinity) July 28, 2022
While the team is busy papering over the cracks, questions remain. For starters, why was the irregular transaction to an exchange never revealed to the ecosystem? Also, if the purpose was to cushion the AXS holders, why not tap into the 1.68 million AXS ecosystem fund, whose purpose is to protect the Axie community?
When the Sky Mavis team discovered the hack, it accessed and unlocked 25.6 million AXS tokens which it sent to the Ronin network before freezing all assets. So, why was this giant fund not used for the Binance activity?
As Sky Mavis ducks the questions, the real victims of its game are still trying to recover from the debts they accrued while trying to win some money. As CoinGeek reported recently, many of these victims are from the Philippines and lost way more than they made.
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