Optimism price has collapsed to a serious low after 20 million of its tokens got stolen by a hacker while they were in transit to Wintermute, a market maker.
On Thursday, the Optimism team released a timeline of events that explained how the 20 million OP tokens were supposed to be spent by the Wintermute crypto market-making firm. The Optimism team transferred the full number of tokens after completing two test transactions.
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How Optimism Functions – Learning the Mechanism
Optimism, like several other systems on the market, is managed by a decentralized autonomous organization (DAO). In order to ensure the development of a governance token through which community members could vote on protocol choices, the DAO had been preparing to release its OP governance token.
Wintermute, a crypto market maker, was employed as a part of their plan to ensure that the tokens were distributed effectively. A total of 20 million OP towns were produced, and the DAO planned to deliver them to investors via an airdrop.
Before transferring the 20 million OP tokens to Wintermute, Optimism stated that they conducted two test transactions with the Company to ensure a safe transfer. Despite the fact that Wintermute acknowledged the successful conduction of both transactions, both parties were taken aback when the coins became untraceable.
Where did the Transaction Go Wrong for Optimism?
The incident was considered to be the result of a market maker’s technical blunder. On June 1, a fraction of the total of OP tokens was airdropped to network users as part of the Optimism layer 2 (L2) blockchain’s native token.
Wintermute was engaged by Optimism to give liquidity to its tokens, and this transit of 20 million OP tokens took place in that transaction. Wintermute noticed they couldn’t manage the OP tokens due to a technical error, as the smart contract was still showing on layer 1 (L1) and hadn’t been upgraded to be deployed on Optimism.
Wintermute was exposed to a hack as a result of this technical error, and a bad actor took advantage of the circumstance, stealing 20 million OP tokens on the L2 for themselves. One million of the twenty million was transferred to Tornado Cash, which allows users to send and receive money from a variety of sources. The attacker changed OP to Ethereum and transmitted it via Tornado Cash to an unknown address.
Wintermute began a recovery procedure with the intention of deploying the L1 multisig contract to the identical address on L2 as soon as it was notified of the error, but it was too soon, and the attacker had already gained control of the 20 million OP tokens, thereby wiping out 2 million from the Company.
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The Late Release of the Transparency Update
Although the Wintermute team notified the Optimism Foundation of the hack on May 30, 2022, the layer-2 solution decided to wait until June 9, 2022, to submit a transparency update.
The first 20 million tokens were distributed two weeks ago. Optimism gave 20 million more tokens to Wintermute after learning of the incident, while the market maker sought to recover the lost tokens.
Wintermute believed the money could only be recovered by their team; however, this belief was disproved when the attacker began to sell their OP token holdings by changing them to Ethereum and subsequently sending them to unknown Tornado Cash addresses. Wintermute sought advice from the Gnosis Safe team, seeking their opinion and assistance in locating the missing OP tokens.
Remedial Actions Taken by Wintermute So Far
Wintermute’s initial inability to get OP tokens was, as per their confessional transparency update, all their responsibility. Wintermute, a worldwide market maker, has decided to purchase OP every moment the attacker trades in order to fully make the protocol complete.
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Wintermute bought an equal quantity of OP tokens after the attacker sold 1 million, indicating that this is not an ethical security attack, according to the market maker. Wintermute recognizes that the attacker’s selling of OP tokens has the capacity to cause OP token price fluctuations. The price of the OP coin dropped by 14% after the announcement. The market maker left a note for the hacker, but no answer has been received as of yet.
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Both parties have tried unsuccessfully to contact the hacker on multiple occasions. Wintermute made an appeal to the hackers in a recent article, even promising them to work if the seized tokens were released. They’ve warned to reveal the hacker’s identity to law enforcement, but the crypto world is interested to see what happens.
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