ECONOMY

Inside Jump Trading’s Response to a $325 Million Wormhole Heist

It was early February, and employees of Jump Crypto had gathered in Miami to do the type of wonky work common among cryptocurrency industry professionals: pour through thick research reports, debate white papers, and decide what projects were worth building next. 

In the middle of the meeting, one of the team members noticed something alarming. Hackers had discovered a disastrous flaw in a project called “Wormhole” that Jump had helped develop. A “high-tech check forgery” was underway, as Dave Olsen, Jump’s president and chief investment officer, describes it.  

Quickly, the Jump team coordinated the shutdown of the project before more damage was done. Then the firm ponied up the cash needed to back the tokens looted by the hackers and keep the Wormhole project alive. Of course, the authorities would need to be notified. So a member of the Jump team went to the local police precinct. 

Uh, yeah, I’d like to report a theft, the Jump employee told an officer, as Olsen describes the exchange.

Cell phone? the cop asked.

Nope, the guy from Jump replied. $325 million in wrapped Ether.

Olsen detailed the firm’s response to the Wormhole heist on the latest episode of the “What Goes Up” podcast. It was part of a discussion about why Jump is spending big on this and other projects meant to build out the infrastructure of the crypto market. Below are condensed and lightly edited highlights of the conversation. Click here to listen to the full show and subscribe on Apple Podcasts or wherever you listen.

Q: Tell us about how you ended up at Jump and tell us more about its crypto division.

A: I joined Jump in 2016. Starting in around 2015, we had been incubating an experiment with a group of students at University of Illinois. They had come to work in a laboratory that we had set up in conjunction with the computer science and computer engineering departments there. And crypto was really a frontier back then. There were no organized exchanges to speak of. There were a lot of homegrown solutions to liquidity in the crypto markets. 

It fit a really nice spot to work on with this group of students and interns, where we wouldn’t expose a lot of intellectual property of the company. Bitcoin was still under $1,000, Ether had not traded even one coin yet. And as an exercise, several of the Jump Labs students and employees set about the work of building a really high-performance infrastructure, almost as a proving ground, to trade crypto for the first time. It’s never something you would’ve invested in as a business plan. The risks were too high. But as an exercise, it was great. And it was just very fortunate timing that, at the end of it, we had a world-class infrastructure ready to go as soon as Bitcoin started to lift off in terms of both price action and volumes. 

Q: What does building out crypto infrastructure entail?

A: We’ve become a pretty big part of the marketplace, not only trading — that’s where our heritage is. But we’ve become a pretty big venture capital investor in the infrastructure that we see as necessary to have crypto and DeFi flourish. And really, starting in the last couple of years, a lot of our focus has moved to building. So we’ve hired a lot of blockchain engineering talent. We acquired a firm called Certus One we believe to be the best blockchain engineers in the world. 

Q: The way I understand Wormhole is it’s a bridge that lets you take assets trading on the Solana blockchain and carry them over the bridge, which is Wormhole, onto the Ethereum blockchain. Can you lay out what happened with the hack?

A: An analogy that I think of when describing Wormhole is: Let’s say I’ve got a PayPal account and I go out to dinner with some friends, and if they’re all using PayPal, we’re on the same “layer one” payment system. And it’s very easy for us to settle the bill. But if one of us uses the Cash App, or Venmo, or some other payment mechanism and I don’t, there’s no way that I can communicate at all. They’re just completely separate ecosystems. They’re closed off from one another. 

For a long time, that’s how the blockchain world worked. If you had Ether on the Ethereum network and you were using that layer-one blockchain, you had this very vibrant community — there were smart contracts written, there were NFT platforms. You could do a lot with your Ether. But if you wanted to spend that Ether or get yourself involved in a project or buy an NFT on a different chain, you had to convert downstream into fiat and then reload a different wallet and have different providers. It was very clunky. 

So Wormhole isn’t really linked to any one specific chain. So the only thing I would take issue with, with your description, is there are now eight layer ones. It’s totally interoperable. We expect that number to grow well into double digits by the end of the year. It’s not just token movement. So this could be NFTs, this could be messages, it could be data. Really anything that can exist on any of those blockchains can be ported over through Wormhole to another blockchain…

In February, it just so happened that about two dozen of us at Jump Crypto were down in Miami… And in the middle of the afternoon, one of our team members who watches a lot of things that are happening on the blockchain like a hawk noticed that there started to become a discrepancy between the amount of wrapped ETH and the amount of Ethereum that should have had a one-for-one deposit locked in a smart contract on the Ethereum blockchain. Those numbers didn’t match anymore. So he pressed the proverbial big, red button. 

We all happened to be in a tiny little room together, and we immediately identified that there was an issue. The way I’ve described it to people is it’s basically a high-tech check forgery where the attacker or attackers were able to spoof the destination chain, in this case that was Solana, into believing that Ether had been locked up on the Ethereum blockchain. So they were able to print — out of thin air — some new wrapped ETH. Once you’ve got wrapped Ether, you can do a couple things. You can go back to the cashier stand and say, “OK, I’ve got this wrapped ETH, I’d like to turn it in for the original ETH please.” And because of the way the system worked, that other Ether that had been locked previously was made available to that person tendering the wrapped ETH. And you can buy stuff with wrapped ETH on different chains. So a little bit happened of the second one, a lot happened to the first one. And all told about 120,000 Ether was compromised. 

Our first step was to try to bring the system down. One of the trade-offs of a decentralized world is you can’t kick the plug out of the wall like you could if it was all your own. You have to put the word out into the community. The way Wormhole works, there are 19 guardians that attest to the transactions and they’re all independent. So we had to get the word out in the Wormhole community that there was an attack and we needed to bring the system down. That probably took 20 minutes. It was a tense 20 minutes because obviously the vulnerability still existed. And there was more value locked beyond what had been compromised. 

Then the next step was OK, what happened? And is it over? Have we effectively taken everything down? Do we know the totality of the problem? And then what caused it? What was the root issue that was able to be exploited? And can we fix it in a way that’s totally robust? In parallel, we had to make the determination, OK, what do we do about the stolen stuff? Jump Trading Group, Jump Crypto, doesn’t have any contractual responsibilities. We’re not liable for anything. But we made an elective decision to swiftly make all the participants whole and to go out and acquire 120,000 ETH ourselves, and then inject that 120,000 ETH into the Wormhole smart contract to replenish what the attacker had stolen. 

Q: You’re talking about roughly $3,000-something a token at that time…

A: It was around $325 million that we spent to do that.

Q: I feel like when someone pulls off a caper like this in crypto, eventually they get caught. It might not be right away. But was that part of the thinking? Was that what motivated you to come to the rescue for a project like this? 

A: You don’t know what is going to happen at the end of all the paths that you chase down. All we know is we’re going to chase down every path. We’re working in very close consultation with government resources, with private resources. There is a lot of firepower that is expert at tracking down criminals like this. And we are in this fight permanently. So this is not something that we will become distracted by next month or next year — this is a permanent condition. 

But I would say that didn’t really factor into the question as to what our action should be in the moment. That was really motivated by a belief that not doing so would’ve been an enormous setback to a cross-chain world in crypto and DeFi in general. Quite logically, it may have been the end of Wormhole entirely, and that kind of a setback, at this moment when such exciting foundational technology is being laid down, would’ve been a terrible outcome, not just for the marketplace. We’re community-minded for sure, but this wasn’t totally an act of altruism. This was an investment in what we believe is going to be an incredibly robust future for a lot of other projects that we’re working on. 

Q: Whom are you working with on the recovery and how close are you to recovering the funds?

A: You are quite a distance away from recovering the funds until you recover them. The agencies of the U.S. government are both incredibly engaged and incredibly well-resourced and expert. This is thankfully not something that we’ve had a lot of repetitions doing. So this is a little bit of a learning experience for everybody at Jump who has been involved in the pursuit of what’s going on. But I’ve been terribly impressed by the resources within the U.S. government to go after these types of criminals. It comes at a time when hacking is at the top of the consciousness of government and private industry…

The great thing about crypto is it’s a permanent, immutable movement-by-movement record that is available for everyone to see. The Ether that was stolen in the Wormhole attack has made exactly one move into the wallet that it was moved into. It has not moved since — everybody is watching that wallet. 

This was just the highlights. Click here to listen to the entire podcast.

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