Binance Alpha Sweeping Artifacts ZKJ and KOGE flash crash mechanism loopholes

Jessy, Golden Finance

On the evening of June 15, the tokens ZKJ and KOGE, which topped the site trading volume of Binance Alpha, plummeted by more than 90% in half an hour.

Because these two tokens have extremely high LP annualized returns and extremely low slippage wear experience. Therefore, it has become the first choice token for Binance Alpha points related to earning points, but because it is a tool for scoring points, its price fails to truly reflect the market value, which lays a hidden danger for the flash crash. At the same time, the project party deliberately built a deformed path of insufficient unilateral liquidity of KOGE, and exit must be exchanged by ZKJ, which makes KOGE's liquidity highly dependent on ZKJ. When the market fluctuates, this structure is prone to trigger a chain trampling reaction.

Finally, it is the fuse of the incident. There are three related addresses that simultaneously withdraw US$7.74 million in liquidity when the Alpha rule adjustment triggers the withdrawal of funds. This move directly led to the exhaustion of market liquidity. In the end, liquidity depletion and contract liquidation formed a death spiral, causing the token to evaporate 90% of its market value within half an hour.

The occurrence of this incident can be said to be the inevitable result of the superposition of multiple factors. The retail investors who were eventually injured were those who used these two tokens to win points in order to obtain Binance Alpha points.

The selected tokens under the Binance Alpha score swipe mechanism

KOGE and ZKJ tokens are Binance's Alpha score-making tools. According to Dune data established by @pandajackson42, on June 14 alone, the total trading volume of Binance Alpha reached US$987 million, of which ZKJ and KOGE were US$703 million and 159 million respectively, accounting for the top two on the list.

First, according to Binance Alpha's score brushing rules, it relies too much on the points rules of transaction volume and LP weight, which makes users choose tokens with good liquidity and low transaction costs to conduct large amounts of transactions in order to obtain more points, even if these transactions may not have real market demand. ZKJ and KOGE meet these conditions just in time, and users can create a large amount of transaction volume by swiping transactions between them, thereby quickly accumulating points.

Specifically, the first thing is the characteristic of the slippage of these two tokens being almost zero - this is too important for high-frequency volume brushers. Ordinary token pairs may wear out 5% of their principal when brushing ten times, and these two tokens can be close to lossless. The second is the APY design of the dual currency pool, and the project party used an algorithm to amplify early returns. The third is that the depth of liquidity is concentrated on the ZKJ path, forming a false sense of security. Finally, the contract supports ZKJ but not KOGE, which allows arbitrageurs to hedge unilateral risks with derivatives.

It is precisely the characteristics of these two tokens that the crypto community at that time had a popular operating strategy of "ZKJ - KOGE for low brush wear" in participating in Binance Alpha airdrop activities. This strategy has been tested and verified by market traders and is considered an effective way to brush scores. Once this strategy spreads in the community, it will attract more users to adopt it, further promoting ZKJ and KOGE to become popular choices for winning points.

Human operations when the platform rules are modified

On June 14, Binance issued an announcement stating that starting from June 19, Binance Alpha airdrops will be distributed in two stages: Phase 1: Users who meet the score (X) can receive them first, and everyone has a share; Phase 2: The threshold is lowered to Y (Y < X), first served, until the prize pool is distributed or the event is over. It is this change that some community members regard as an indirect catalyst for early evacuation of large households and LP withdrawal.

According to community user Emilia, KOGE's project party has been adding unilateral liquidity to control the rise in the currency price, which has also led to the fact that the liquidity of KOGE/USDT is much smaller than what you see. Once a large investor smashes KOGE, the remaining LPs cannot go to the KOGE/USDT pool and must be exchanged for ZKJ to further form a stampede.

At the same time, some big investors have established ZKJ's short positions on CEX to prepare for subsequent hedging. When market activity slowed down, APY fell, and the amount of funds reduced, large investors began to withdraw their LPs one after another, and exchanged their KOGEs for ZKJ, and then concentrated on selling ZKJ to complete the withdrawal of funds. Spot prices fell rapidly as a result, and ZKJ contract long positions were widely liquidated, further amplifying the downward range.

According to analyst @ai_9684xtpa, three related addresses completed precise collaborative operations at 20:28-20:50. It was its "pool withdrawal + sell- off" hunting operation that became the last fuse for the outbreak of this incident:

Phase 1: Draining liquidity (20:28-20:33)

Address A (0x1A2...27599) took the lead in removing the ZKJ/KOGE liquidity pool and extracted tokens worth US$4.29 million (including 3.76 million KOGE and 530,000 ZKJ);

Address B (0x078...8bdE7) simultaneously withdraws US$3.45 million in liquidity (2.07 million KOGE + 1.38 million ZKJ).
Market impact: The liquidity pool is instantly exhausted and the tokens lose price support.

Phase 2: Fake position change cover (20:28-20:58)

The two addresses will withdraw KOGE and exchange positions to ZKJ (total of 6.05 million US dollars), creating the illusion of "sky-high transactions" on the chain and inducing investors to misjudgment of market activity.

Stage 3: Step-by-step smashing (20:30-20:50)

Address A sells: 1.57 million ZKJs (worth $3.05 million) were sold in batches, causing a slight decline in tokens;

Address B 's fatal blow: concentrated selling of 1 million ZKJs (US$1.94 million), triggering a KOGE minute-level plunge;

Address C (0x6aD...e2EBb) clearance ends: Receive the 770,000 ZKJ transferred by Address B and sell it quickly, completely breaking through the ZKJ price defense line.

The entire sale adopts the "low quantity and multiple transactions" strategy, which avoids large orders triggering market alerts until the centralized selling at address B triggers a collapse avalanche.

Summarize:

The outbreak of this incident is the inevitable result of the superposition of multiple factors. First, Binance Alpha's excessive reliance on the points rules of trading volume and LP weights has spawned a volume brushing bubble, making ZKJ/KOGE a "score brushing tool" without real demand; the project party deliberately built a deformed path of KOGE's unilateral liquidity, such as exit, must be exchanged by ZKJ, and large investors will establish ZKJ short order ambush in advance; in the end, the three related addresses took advantage of the adjustment of the Alpha rule to trigger funds withdrawal, and the liquidity was withdrawn simultaneously. They created false trading volume through KOGE to ZKJ's position exchange, which triggered a series of stampedes with step-stage selling - liquidity depletion and contract liquidation formed a death spiral, resulting in the token evaporation of 90% of the market value within half an hour.

For investors, it seems that behind all the "zero friction and high returns" generated by relying on single incentives, such as the "zero friction and high returns" generated by airdrops, are deadly traps, which is the warning left to investors.