Mar 30, 2022
Giant Ronin Bridge Hack Could Change How VCs Invest in Crypto
(Bloomberg) -- A roughly $600 million hack of software underpinning the popular play-to-earn game Axie Infinity is likely to change the attitude and responsibilities of venture capitalists investing in crypto, said Animoca Brands co-founder Yat Siu.
The security breach allowed hackers to steal 173,600 Ether and 25.5 million USDC tokens and underscored the glaring weaknesses in so-called bridges that allow digital tokens to be swapped between different blockchains. Animoca, which has a range of businesses related to non-fungible tokens, is an investor in Sky Mavis, the developer of Axie Infinity.
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“It’s a shame that maybe this needed to happen to Sky Mavis for the world to take note, but we’re all being more careful,” Siu said in an interview at the NFT LA conference in Los Angeles.
In the March 23 attack, hackers targeted the Ronin Bridge, which Sky Mavis adopted to help Axie Infinity’s network accelerate transactions and reduce costs.
Siu said Animoca is in discussions with the Sky Mavis team about reimbursing players who lost funds, but declined to comment further on how that might be done. Sky Mavis told Bloomberg that the company is “fully committed” to reimbursing players.
VC firms investing in crypto will have to be prepared to help portfolio companies in the event of a hack, according to Siu. Closely auditing the code and security protocols before investing will take on greater importance. VCs can work with blockchain-focused security firms like CertiK to make these assessments, he said.
Animoca itself recently received a large venture capital infusion, raising $359 million in January from investors including George Soros and the Winklevoss twins. It’s poised to add KKR & Co. as an investor, Bloomberg News reported in February.
“Crypto-native” VC firms that have built all or part of their operations around knowledge of the industry have an advantage in terms of supporting portfolio companies on issues like security, Siu said. As crypto dealmaking grew to eclipse many other sectors, that’s an approach increasingly being taken by firms like Andreessen Horowitz.
“VCs are starting to create a model where they have in-house expertise,” he said.
The role of venture capital in crypto has proved controversial, with some digital asset enthusiasts raising concerns that VC firms wield too much control over the industry. This issue has cropped up with projects like ApeCoin, where major investors like Andreessen Horowitz and Animoca received large, non-majority amounts of tokens that come with voting power over how the project is managed.
Siu said crypto investors should be wary of projects where venture capitalists own a majority share of the tokens.
“You’re not buying into the company, you’re buying into the VC,” he said.
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