Sharp Drop of ZKJ Token (Polyhedra): What Were the Reasons?

Introduction

On June 15, 2025, Polyhedra Network’s native token, ZKJ, experienced a catastrophic 83% price crash, plummeting from $1.92 to $0.30 in just hours, wiping out nearly $500 million in market capitalization. This dramatic collapse, one of the most severe in recent DeFi history, sent shockwaves through the crypto community, raising questions about the stability of Polyhedra’s ecosystem and the vulnerabilities of decentralized finance (DeFi) markets. Polyhedra, a zero-knowledge proof (ZKP) protocol known for its zkBridge interoperability solution, attributed the crash to a confluence of factors, including coordinated liquidity attacks, substantial token deposits by market maker Wintermute, and cascading liquidations on centralized exchanges (CEXs). The incident, compounded by a token unlock and Binance Alpha’s liquidity dynamics, has sparked debates about market manipulation and DeFi’s structural risks. In this article, we explore the reasons behind ZKJ’s sharp drop and its broader implications.

In this article, we would explore:  

1. Coordinated Liquidity Attacks and Their Role in the Crash

2. Wintermute’s Token Deposits and Market Impact

3. Cascading Liquidation and Binance Alpha’s Fragile Liquidity Structure

Coordinated Liquidity Attacks and Their Role in the Crash

The primary catalyst for ZKJ’s collapse was a series of coordinated liquidity attacks targeting the ZKJ/KOGE trading pair on PancakeSwap’s V3 pool. Polyhedra’s June 16 report detailed how multiple wallets executed large-scale liquidity withdrawals, severely draining market depth and triggering a rapid price decline. One address alone withdrew $4.3 million in liquidity and dumped 1.57 million ZKJ tokens, while at least five other wallets followed suit, selling millions of tokens within minutes. These actions overwhelmed the pool’s fragile liquidity structure, causing ZKJ to drop from $1.92 to $0.76 in just 90 minutes, with a further plunge to $0.30 by the end of the day.

How It Happened

- Liquidity Withdrawal: The attackers removed significant liquidity provider (LP) tokens from the ZKJ/KOGE pool, reducing the pool’s ability to absorb sell orders. For example, one wallet extracted 61,130 KOGE (worth $3.7 million) and 273,017 ZKJ ($532,000), destabilizing the pool.

- Token Dumping: After withdrawing liquidity, the wallets swapped KOGE for ZKJ and sold the latter en masse, flooding the market with sell orders. This caused a chain reaction, as thin order books on decentralized exchanges (DEXs) couldn’t handle the volume.

- Market Fragility: The ZKJ/KOGE pool, heavily used for Binance Alpha points farming, was already vulnerable due to concentrated liquidity and reduced rewards after Binance adjusted its Alpha Points system in early June.

For Example: Imagine a DeFi pool with $20 million in liquidity, primarily from a few large holders. If one whale withdraws $4 million and sells 1.5 million tokens, the pool’s depth shrinks, causing slippage that drives prices down 20%. If five more whales do the same within minutes, the price can collapse 80%, as seen with ZKJ. Polyhedra’s attempt to inject $30 million in stablecoins (USDT, USDC, BNB) during the crash failed to stabilize prices, as these funds were converted to ZKJ at rapidly falling rates.

Impact

The coordinated attack exposed the risks of concentrated liquidity in DeFi pools, particularly for tokens like ZKJ, which relied heavily on speculative farming. Community sentiment on X reflected distrust, with users like @MasterCryptoHq labeling the event a potential “rug pull” due to the rapid, orchestrated nature of the sell-off. Polyhedra denied team involvement, but the incident raised concerns about DeFi’s susceptibility to manipulation.

Wintermute’s Token Deposits and Market Impact

A significant factor in ZKJ’s crash was the large-scale token deposits by Wintermute, a prominent crypto market maker. Polyhedra’s report highlighted that a Wintermute-linked wallet transferred over 3.39 million ZKJ tokens to centralized exchanges during the crash, coinciding with extreme market volatility. Between 12:45 and 14:14 UTC, Wintermute’s Ethereum wallet balance dropped from 3.41 million ZKJ to just 22,688, as tokens were moved to CEX deposit addresses. This massive sell-off, valued at millions, exacerbated the price decline, pushing ZKJ to a low of $0.29.

Wintermute’s Role

- Token Transfers: Wintermute’s deposits flooded CEX order books, where low liquidity amplified the impact. The timing of these transfers, alongside the liquidity attack, suggested to some that Wintermute may have contributed to the crash, though Polyhedra stopped short of direct blame.

- Market Making Risks: As a market maker, Wintermute provides liquidity but also engages in spot selling and futures trading. Wintermute’s co-founder Evgeny Gaevoy noted on X that the firm was “selling spot and going long via ZKJ-tracked futures,” a strategy that profited from the crash but fueled liquidations.

- Community Backlash: X users, including @AcolytAI, accused Wintermute of contributing to the crash through “systematic wash trading,” though no conclusive evidence supports this claim. The controversy highlighted the opaque role of market makers in DeFi.

For Example: Consider a market maker like Wintermute holding 3.4 million ZKJ tokens, worth $6.5 million at $1.92. By depositing these to a CEX and selling during a liquidity crunch, the influx of sell orders could drop the price by 50% in minutes, triggering stop-loss orders and liquidations. This is precisely what happened, with Wintermute’s actions amplifying the attack’s impact. Polyhedra’s $30 million liquidity injection couldn’t counter the combined pressure from Wintermute’s sales and the liquidity withdrawals.

Impact

Wintermute’s actions raised questions about the role of market makers in DeFi’s volatile markets. While their deposits were legal, the timing and scale fueled speculation of coordination with the liquidity attackers. Polyhedra’s ongoing investigation aims to clarify these dynamics, but the incident underscores the need for better oversight of market maker activities in DeFi.

Cascading Liquidations and Binance Alpha’s Fragile Liquidity Structure

The ZKJ crash was intensified by cascading liquidations, with $94–$97.4 million in leveraged long positions wiped out between 12:00 and 14:00 UTC. These liquidations, triggered by the initial price drop, created a feedback loop that drove ZKJ to its all-time low of $0.3073. The crash was closely tied to Binance Alpha, a points farming program that incentivized ZKJ/KOGE trading, but whose liquidity structure proved fragile when rewards were reduced.

How Liquidations Fueled the Crash

- Leveraged Positions: Traders using ZKJ/KOGE to farm Binance Alpha points held leveraged long positions, betting on price stability. When liquidity was pulled, the price drop triggered margin calls, forcing liquidations that flooded the market with sell orders.

- Binance Alpha’s Role: The ZKJ/KOGE pool was a cornerstone of Binance Alpha’s farming program, attracting $20 million in liquidity due to low slippage and high rewards. However, Binance’s decision to cut rewards in early June weakened the pool’s stability, making it vulnerable to attacks.

- Token Unlock Pressure: A scheduled unlock of 15.53 million ZKJ tokens on June 19 loomed over the market, adding selling pressure. X users speculated that fear of the unlock prompted whales to exit early, exacerbating the crash.

For Example: Picture a trader with a $1 million long position on ZKJ at 10x leverage. A 20% price drop from $1.92 to $1.54 triggers a margin call, forcing the trader to sell 520,000 ZKJ to cover the position. If multiple traders face similar calls, the market is flooded with $50 million in sell orders, collapsing the price further. This cascade, combined with Binance Alpha’s weakened liquidity, turned a manageable dip into an 83% crash.

Impact

The liquidations exposed the risks of speculative farming in DeFi, where reward-driven liquidity can vanish rapidly. Binance’s adjustment to exclude Alpha token trades from June 17 reflects an attempt to mitigate such risks, but the damage to ZKJ’s reputation was significant. Polyhedra’s buyback plan, announced by co-founder Tiancheng Xie, aims to restore confidence, but X users like @CryptoChihiro expressed skepticism, citing the $500 million market cap loss as a trust crisis.

Conclusion

The 83% crash of Polyhedra Network’s ZKJ token on June 15, 2025, was a perfect storm of coordinated liquidity attacks, Wintermute’s large-scale token deposits, and cascading liquidations tied to Binance Alpha’s fragile liquidity structure. The attack on the ZKJ/KOGE pool drained critical market depth, while Wintermute’s 3.39 million ZKJ sell-off and $94 million in liquidations amplified the collapse, erasing $500 million in market value. Polyhedra’s response, including a $30 million liquidity injection and a planned buyback, aims to stabilize ZKJ, but the incident highlights DeFi’s vulnerabilities to manipulation and overreliance on speculative incentives. As Polyhedra investigates and the market braces for a 15.53 million token unlock, the crash serves as a cautionary tale for DeFi projects and investors, underscoring the need for robust liquidity mechanisms and transparency to prevent future attacks.